South Africa rand weaker, bonds rally on foreign demand

JOHANNESBURG: Renewed risk aversion kept South Africa's rand on the back foot against the dollar and a flight to safety supported bonds, pushing benchmark yields to new lows on Friday, as stocks opened lower following a global sell-off.

The yield on the heavily traded four year bond was down four basis points at 6.65 percent, while that for the 2026 issue fell by the same margin to 7.935 percent as foreign investors continued to flock to the local debt market.

"There is fear spreading through the equity market because of weak economic data out of the US this week and investors are looking for some sort of guaranteed return in the bond market," a trader in Johannesburg said.

Offshore demand remained strong, with foreigners buying about 3.3 billion rand worth on the secondary market on Thursday.

"Our debt matrixes are obviously better than some of the European countries and the other emerging market countries. Our yields are about 570 points over the US treasuries curve and that is also providing investors with a good return," the bond trader said.

The rand was sickly against the dollar after waning risk appetite pushed it more than 2.1 percent weaker on Thursday. It fell to 7.2480 earlier in Friday's session and traded at 7.1950 by 0700 GMT, down 0.04 percent from Thursday's close.

"(The) rand continues to track the fortunes of the euro versus the dollar. At the moment, the greenback is a preferred safe-haven, along with gold, with players wary of intervention in the Swiss frank and the yen," emerging market analyst Christopher Shiells of Informa Global Markets said.

The firmer price for gold, of which South Africa is a major producer, and inflows into bonds might offer the currency some support.

"We expect renewed strength in dollar/rand to push it up towards 7.3440, but some resistance around 7.25 will cap gains at the moment," Shiells added.

The JSE Top-40 blue-chip index was down 0.31 percent just after the bourse opened at 0700 GMT, extending the previous day's losses when stocks booked their biggest daily decline in more than 15 months in line with a global meltdown.

Copyright Reuters, 2011