JOHANNESBURG: South Africa's rand jumped more than 1 percent to a five-week high against the dollar on Monday, as policy easing by Japan triggered carry trades favouring risky currencies.
Local government bonds followed suit, with the longer-dated end of the curve drawing particularly strong demand.
The yield on the 2026 benchmark tumbled as much as 14.5 basis points during the day to a multi-year low of 6.995 percent. The shorter-dated 2015 paper shed 5 basis points to end Monday's session at 5.295 percent.
The rand was at 9.0050 to the dollar at 1735 GMT, up 1.04 percent from Friday's close. It briefly flirted with the psychologically key 9.0 level earlier on Monday, its strongest level since March 1.
"Overall, we're just seeing an extension of the move that played out on Friday across risk currencies as the Bank of Japan announced pretty aggressive stimulus measures," said Gareth Brickman, market analyst at ETM Analytics.
"We've seen more inflows coming from offshore markets into our bonds because the interest rates are very attractive, so bonds are also very firmly bid."
The current rally could however prove a temporary reprieve for the rand, which was at four-year lows against the dollar only last month, hamstrung by a weak outlook for the domestic economy.
The rand is still down nearly 7 percent against the greenback since the start of the year, following a heavy sell-off triggered by violent strikes in the mining sector which have slashed output in the world's largest producer of platinum.
The strikes cost the economy 11 billion rand in lost revenue over the course of the just-ended 2012/13 financial year, Finance Minister Pravin Gordhan said last week.
"It's difficult to know whether the rand is going to be able to sustain these moves because structurally it is still a vulnerable currency," said ETM's Brickman.
<Center><b><i>Copyright Reuters, 2013</b></i><br></center>
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