South Africa Bond Yields Drop to 4-Month Low on U.S. Debt DealRobert Brand
South African bonds rose for a second day, driving benchmark yields to the lowest since June, as an end to the U.S. fiscal impasse fueled demand for riskier assets. The rand strengthened to a three-week high.
President Barack Obama signed into law a measure ending the 16-day government shutdown and extending the nation’s borrowing authority until early next year, easing concern of a default in the world’s biggest economy. Foreign investors bought a net 384 million rand ($39 million) of South African bonds yesterday, according to data from the Johannesburg Stock Exchange compiled by Bloomberg.
“Global risk appetite gained momentum as it became increasingly clear that U.S. lawmakers would lift the debt ceiling,” Theuns de Wet, head of global markets research at Rand Merchant Bank, said in e-mailed comments. “This improvement should support the bond market again today.”
Yields on benchmark 10.5 percent bonds due December 2026 dropped seven basis points, or 0.07 percentage point, to 7.8 percent by 4:05 p.m. in Johannesburg, the lowest on a closing basis since June 14. The rand gained 0.4 percent to 9.8287 per dollar, the strongest level since Sept. 24 on an intraday basis.
Investors will now look to the Federal Reserve and speculation about the timing of a reduction in monetary stimulus, said Mohammed Nalla, head of strategic research at Nedbank Group Ltd. The Fed has said it will taper its $85 billion of monthly bond purchases if the U.S. economy’s expansion meets targets.
“The focus will now revert to the various quantitative-easing scenarios,” Nalla said in a note. “The current set of circumstances has been perceived as positive for emerging markets and like the rand they are enjoying a reprieve.”
The rand is the worst performer this year among 16 major currencies tracked by Bloomberg, slumping 14 percent against the dollar. South African bonds with a duration of longer than a year have returned 1.4 percent this year, compared with 31 percent for Greek debt, the best performer of 26 indexes tracked by the European Federation of Financial Analysts Societies and Bloomberg.