South African Bonds Rebound From Nene Firing and Brexit Loss

  • Yields back to levels last seen before Zuma axed finance chief
  • Rand set for best month against pound for almost 30 years

South African bonds gained, driving yields to levels last seen before President Jacob Zuma fired Nhlanhla Nene as finance minister in December, while the rand led global currency gains as foreign investors piled into the country’s stocks and bonds.

Yields dropped for a second day as global markets rallied amid speculation policy makers around the world will act to mitigate the fallout from the U.K. ’s vote to leave the European Union. By 5:03 p.m. in Johannesburg, the yield on the benchmark December 2026 security was down 12 basis points to 8.8 percent, the lowest since Dec. 7, just two days before Zuma replaced Nene with a little-known lawmaker as finance minister, sending the rand and bonds to record lows.

The rand gained 2.5 percent on Wednesday to 14.8159 per dollar as all but three of the 31 major currencies tracked by Bloomberg strengthened. It was the biggest gainer among emerging markets. Against the pound, it rose a seventh day, strengthening beyond 20 to for the first time since August and putting it on course for its best month against the U.K. currency since 1986, having advanced 13.6 percent.

“There’s a rising tide that lifts all boats,” said Mohammed Nalla, head of strategic research at Nedbank Group Ltd. in Johannesburg. “You’ve had a phenomenal appetite for local bonds and equities over the last several weeks. That’s accelerated even further in the wake of Brexit.”

Offshore investors continued to pile into South African assets, with stock inflows clocking up their longest streak since 2009 and purchases of government bonds at 14.7 billion rand ($980 million) so far in June, compared with outflows of 6.8 billion rand in the same period last year.

“The global search for yield is coming through,” Nalla said. “The expectations around the hikes from the Fed, they haven’t just flattened to zero, they’re now pricing in the potential for rate cuts out of the U.S. as well, which is a complete about-turn.”

Fed Governor Jerome Powell warned that global risks have shifted further to the downside after the U.K. vote, introducing new uncertainties that may require a reassessment of monetary policy. South Korea announced a fiscal stimulus package on Tuesday and Bank of Japan chief Haruhiko Kuroda said Wednesday that more funds can be injected into the market should they be needed.

South Africa’s benchmark stock index gained for a second day, adding 1.5 percent to erase losses in the two days after the Brexit vote. Naspers Ltd., which owns a stake in China’s Tencent Corp., and Anglo American Plc, a diversified miner, led the advance.

Before it's here, it's on the Bloomberg Terminal.