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 eight basis points, or 0.08 percentage point, to 6.24 percent by 3:30 p.m. in Johannesburg, the lowest on record and extending a drop of 20 basis points last week. The rand traded 0.8 percent stronger at 9.0256 per dollar after gaining as much as 1 percent to 9.0020, the best intraday level since March 1.

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. The extra yield investors demand for holding South African 10-year debt rather than U.S. notes has narrowed 14 basis points, or 0.14 percentage point, since March 20 to 484.

“The negative data out of the U.S. is sparking new interest in bonds, and this has also filtered through to the local market,” Mohammed Nalla, head of strategic research at Nedbank Group Ltd., said by phone from Johannesburg. The rand could extend gains to 8.85 per dollar if it breaches 9, a significant resistance level to further gains, he added.

Foreign investors bought a net 5.4 billion rand ($598 million) of South African bonds last week, the most since the week ending Nov. 23, according to JSE Ltd. data.

Slowing Growth

Manufacturing growth slowed to 2.1 percent in March from 3.9 percent the previous month, a report will show on April 11, 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.

“Any expectations of a domestic rate hike are being quickly unwound and as a result South African rand bonds could see further gains,” George Glynos, a Johannesburg-based analyst at ETM Analytics, said in e-mailed comments.

Forward-rate agreements starting in a year have dropped 15 basis points in the past week to 5.15 percent, compared with the three-month Johannesburg Interbank Agreed Rate of 5.12 percent. As recently as March 22, the contracts yielded 5.38 percent, indicating that traders were pricing in a 25 basis-point increase in borrowing costs in the next 12 months.

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