South Africa Yields Hit Record Lows on Stimulus Bets; Rand Gains
South African bonds gained, driving yields to record lows, and the rand rallied amid speculation monetary stimulus by global central banks will continue, boosting demand for high-yielding assets.
Yields on 6.75 percent government bonds due December 2026 dropped seven basis points, or 0.07 percentage point, to 6.25 percent by 10:14 a.m. in Johannesburg, the lowest on record and extending a drop of 20 basis points last week. The rand traded 0.4 percent stronger at 9.0588 per dollar after gaining as much as 0.5 percent to 9.0563, the best intraday level in a month.
U.S. Treasuries, the global benchmark, soared the most since August last week after a Labor Department report showed the economy added the fewest jobs in nine months in March, sparking bets the Federal Reserve will maintain bond purchases. A report this week may show South African manufacturing growth slowed in March, bolstering the case for the Reserve Bank to keep interest rates at a 35-year low.
“For the time being, the probability is high and growing that high-yielding emerging-market currencies will experience some sustained portfolio inflows, South Africa included,” George Glynos, a Johannesburg-based analyst at ETM Analytics, said in e-mailed comments. “The performance of South Africa’s bonds last week has shown that there is still some value seen, especially if a weak growth outlook is held.”
Foreign investors bought a net 5.4 billion rand ($594 million) of South African bonds last week, the most since the week ending Nov. 23, according to JSE Ltd. data.
Manufacturing growth slowed to 2.1 percent in March from 3.9 percent the previous month, a report will show on Thursday, according to the median estimate of nine economists in a Bloomberg survey. Slowing growth may convince the central bank to leave its benchmark repo rate at 5 percent for longer to stimulate the economy even as inflation accelerates.
“The Monetary Policy Committee is unlikely to respond to a temporary inflation overshoot this year when the economic recovery is still hesitant,” Brigid Taylor, head of institutional flow sales at Nedbank Group Ltd. (NED) in Johannesburg, said in e-mailed comments.
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