South Africa Bonds Rally 4th Week on Foreign Inflows; Rand Drops

South African bonds rallied, set for a fourth weekly advance, buoyed by foreign-investor demand after the Federal Reserve refrained from reducing asset purchases. The rand weakened, paring its third weekly gain.

Foreign investors bought the most South African bonds in more than three months yesterday as global debt rallied with stocks and commodities after the Fed said on Sept. 18 it wants more evidence of a U.S. economic recovery before paring its $85 billion-a-month bond-buying program. South Africa’s central bank left its repurchase rate at 5 percent yesterday even as it increased inflation estimates.

“While the Monetary Policy Committee statement put upward pressure on local yields and rates, it was not enough to reverse the impact” of the Fed decision, Carmen Nel, a fixed-income analyst at Rand Merchant Bank in Johannesburg, said in an e-mailed note. “With the timing of tapering being pushed out, global market commentators have become outright bullish on risky assets.”

Yields on benchmark bonds due December 2026 dropped 15 basis points, or 0.15 percentage point, to 7.89 percent by 3:54 p.m. in Johannesburg, bringing the decline this week to 27 basis points, the most since the five days ending June 28. The rand depreciated 1.2 percent to 9.8204 per dollar, paring its gain this week to 1.1 percent.

The rand, which rallied this week to a four-month high against the dollar, retreated after Federal Reserve Bank of St. Louis President James Bullard said the decision not to slow bond buying was “borderline”. Bullard, who is also a Fed policy maker, said “small” tapering is possible next month.

Foreign investors bought a net 2.72 billion rand ($280 million) of South African bonds yesterday, the most in a day since June. That brought inflows for the month to 13.5 billion rand, according to JSE Ltd. data.

The central bank kept its average inflation forecast for this year unchanged at 5.9 percent, while raising next year’s projection to 5.8 percent from 5.5 percent, and predicting 5.4 percent in 2015. Inflation accelerated to 6.4 percent in August from 6.3 percent in the previous month.