JOHANNESBURG: South African government bonds weakened in early Thursday trade and the rand hovered near early-September lows as worries about the euro zone debt crisis came to the fore and investors fretted about the weak domestic economic outlook.
The yield on the three-year benchmark added two basis points to 5.335 percent and that for the 14-year issue, which is also heavily traded on the secondary market, was up 2.5 basis points at 7.515 percent.
The market was pricing in the likelihood that the government could signal plans to increase borrowing in its mid-term budget towards the end of October, with data pointing to low revenue flows, traders said.
"Demand is also petering off after the WBGI inclusion," a Johannesburg trader added, referring to South Africa's Oct. 1 inclusion in the World Government Bond Index which has spurred foreign purchases of local debt in the last few months.
The rand was slightly firmer in early trade but still within striking distance of the previous day's one-month lows against the dollar, weighed down by weak domestic economic fundamentals and continued uncertainty over the debt crisis in the eurozone.
The rand was at 8.40 to the greenback by 0652 GMT, up just 0.25 percent from its previous close of 8.4210.
The currency hit a low of 8.4590 on Wednesday, its weakest since Sept. 9 as commodity currencies globally weakened on the back of weak demand from major consumer China.
"Risk aversion remains elevated but there does appear to be more support for the rand this morning in line with the improved performance of the commodity currencies of the Australian dollar and the Canadian dollar," said Tradition Analytics.
"The euro too is performing slightly better and it would appear that there is some pricing out of risk in the euro zone."