TH: Yields fall to record low on foreign demand as rand gains
South African bonds gained, driving yields to record lows, after Italy’s downgrade by Moody’s Investors Service made the debt of the continent’s biggest economy more attractive. The rand appreciated.
Yields on the nation’s 6.75% bonds due 2021 dropped six basis points, or 0.06 of a percentage point, to 6.98% in Johannesburg after falling to 6.95% earlier, the lowest on record, according to data compiled by Bloomberg. The rand advanced less than 0.1% to 8.3158 per dollar, trimming its second successive weekly decline to 0.6%.
Moody’s cut Italy’s bond rating two steps to Baa2, citing a deteriorating economic outlook. That pushed Italy’s rating two levels below South Africa’s, boosting the relative attractiveness of the country’s debt. The rand will probably return 6% by year-end, the best so-called carry trade among 16 major currencies, according to Bloomberg calculations based on current market rates and currency forecasts.
“The longer South Africa’s rating remains unchanged the higher its relative global rating climbs,” said Quinten Bertenshaw, a Johannesburg-based analyst at ETM Analytics. “This can only be good from the perspective of fund flows toward South Africa.”
The gain in South African government bond prices could also be attributed to expectations that the central bank will sit tight on low rates and sound a dovish note next week, while the rand ended a bad week firmer against the dollar.
Dealers say the local unit tracked firmer levels in the euro, which took advantage of a broadly weaker greenback.
The FTSE/JSE Africa All Share Index advanced for the first time in three days, climbing 1.2% to 33,792.75 by the close in Johannesburg. The index declined 1.3% last week. Resources stocks led the rebound. Exxaro Resources, part-owner of South Africa’s biggest iron-ore mine, snapped the biggest five- day drop since 2008 as metals gained on speculation China may take more steps to boost the economy.
The stock rose for the first time in six days, advancing 2.7% to 173.50 rand by the close in Johannesburg. Exxaro slumped 18% in the previous five days to July 12, the most since November 2008.
“It was really just very heavily oversold,” Clinton Duncan, an analyst with Johannesburg-based Avior Research, said by phone. Speculation that China may step up stimulus efforts also boosted mining stocks, he said.
Local stocks seemed to be taking cue from global markets but analysts have warned that despite making progress, the eurozone debt crisis remains unsolved and, in a repeat of last summer, could still bring nasty surprises to global stock markets in July and August.
In measuring up the coming summer weeks, “market sentiment is extremely negative,” said Alexandre Hezez, a trader at asset management firm Convictions AM.
The Paris stock exchange plummetted 18% between July 1 and September 1, 2011. Since then, eight summits, a budgetary pact, a new rescue fund and more than ¤1 trillion (R10 trillion) injected by the ECB into the struggling financial sector have failed to end the eurozone debt crisis.
Last summer Greece sparked panic, but concerns for Athens have receded to the background. – with Bloomberg and AFP
