JOHANNESBURG: The rand fell against the dollar on Tuesday, reflecting weakness in emerging market currencies as investors fret about the euro zone debt crisis and global growth, driving government bond yields to one-month highs even after a strong debt auction.
The short to medium term outlook for the currency and bonds was seen as positive, however, as carry trades are expected to support the high-yielding rand while March bond coupon payments should find their way back to cushion the debt market.
The government benchmark 2015 bond yield added 3 basis points to 6.71 percent while the 2026 yield climbed 2.5 basis points to 8.315 percent, levels last seen towards the end of January.
"Euro weakness and subsequent rand weakness has pushed yields to three-week highs, (however) March is a big coupon month which should support in the weeks ahead," said Steve Arnold, a bond trader at Investec Bank.
Yields on government bonds sold at auction earlier on Tuesday fell after the sale as secondary market demand pushed prices higher, especially on the 2021 bond, which attracted bids worth four times the amount of debt on offer.
"Seen in the context of a relatively quiet market, the strong result is quite positive. We believe fiscal data has supported a bond-bullish view, though it has not really come through in general price action yet," Leon Myburgh, sub-Sahara strategist at Citi bank in Johannesburg, said in a note.
The 2021 bond held on to some of those gains at the official close, while the 2018 and 2041 bonds ended steady.
The rand was down 1.22 percent on the dollar to 7.6475, and was the third worst performer in a basket of 20 emerging market currencies tracked by Reuters at 1530 GMT. It closed at 7.5550 in New York on Monday.
Investors are looking to early morning data on Wednesday to see if the central bank has upped its reserves accumulation, which was boosted in January by flows from an international bond sale. The reserves data is due at 0600 GMT.
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