JOHANNESBURG, July 25 (Reuters) – Yields were sharply lower
as South Africa’s government bonds rallied on Wednesday, with
investors seeing bargains in the local debt market after the
previous day’s heavy sell-off.
The rand gained as much as 1.3 percent against the
dollar before retreating later in the session and traders said
nagging worries about euro zone debt problems were likely to cap
any significant gains.
The yield for the three-year bond which trades
heavily on the secondary market closed 9.5 basis points lower at
5.39 percent while that for the 14-year paper fell
14.5 basis points to 7.335 percent.
Demand was picking up again following a brief correction
after last week’s unexpected 50 basis point cut in the benchmark
repo rate by the Reserve Bank’s monetary policy committee (MPC)
pushed yields to record lows, traders said.
“They (bonds) present value again. We’ve seen a huge
retracement in bond yields since the MPC — the market was
nearly half a percent up at one stage this morning from the low
after MPC last week,” said Ian Scott, a portfolio manager at
Stanlib.
“Spanish yields have come off their highs a little bit and
we also saw the euro strengthen today. This all helps the local
bond market, but how long it will last we don’t know — it’s a
typical risk-on, risk-off scenario.”
The rand was trading at 8.4567 against the
greenback by 1618 GMT — off a session high of 8.4080 but up
0.74 percent from Tuesday’s closing level of 8.52.
“It’s really euro dependent at the moment,” said Rand
Merchant Bank trader Jim Bryson, alluding to the rand’s tendency
to track the common currency mainly because of South Africa’s
close trading links with the euro zone.
“If we can get some more traction on the euro, the rand
stays in ranges but the danger is still the downside for the
euro.”
The rand has taken a pounding against the dollar this year,
hitting a three year low of 8.71/dollar in early June as the
euro zone debt crisis spawned aversion to emerging market assets
perceived as carrying higher risks for investors.
(Reporting by Stella Mapenzauswa)
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