JOHANNESBURG: South Africa's rand weakened against the dollar on Tuesday, partly tracking weaker government bonds after a weekly auction was poorly received due to investors' concerns about over-supply of paper in the coming month.
The yield on the three-year benchmark bond gained five basis points to 6.725 percent while that for the longer dated paper due in 2026 climbed eight basis points to 8.43 percent.
"The sell-off was mainly on the back of the auction which was poorly subscribed today," said Richard Farber, a bond trader at WWC Securities.
"April is generally a pretty poor trading month given all the public holidays and guys are aware that you've got basically three days before the next auction comes around."
The weekly auction, in which 2.1 billion rand of the 2018 , 2036 and 2031 issue was on offer, saw a lukewarm response from primary dealers, with the short-dated paper attracting the highest bid-to-cover ratio at 2.62.
Citi said the poor performance in longer dated paper could be linked to the Treasury's switch auction programme commencing in May, in which investors can opt to transfer their money from soon-to-mature bonds into longer-term security instead of cashing it in.
"Although this is not new, it may have led market participants, real money investors in particular, to be particularly cautious," Citi said in a note.
The rand took its cue from the bond market, and was down 0.59 percent on the day at 7.6950 by 1557 GMT compared with Monday's close at 7.65.
"The bond auction didn't really go too well and we saw a sell-off related to that. Also, the dollar itself has been generally stronger today," a Johannesburg currency trader said.
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