JOHANNESBURG, April 2 (Reuters) – South Africa’s rand edged
higher against the dollar on Monday, after bullish China data
boosted risk appetite, and government bonds rose, although
demand for local debt could weaken if inflation data starts
pointing to interest rate rises.
The rand traded 0.37 percent firmer at 7.6290 to
the dollar at 1606 GMT after closing at 7.6570 last week, as
upbeat Chinese factory data boosted the global economic outlook
and supported demand for riskier emerging market assets.
The yield on the three-year benchmark bond closed
2.5 basis points lower at 6.675 percent and the yield on 14-year
paper shed three basis points to 8.35 percent.
“Nothing much has happened today – I haven’t seen big-ticket
trading going through but the rand could have been a major
contributor (to bond gains),” Alvin Chawasema, a trader at
Renaissance Capital, said.
“The highlight for me today has been the moves on the curve.
Surprisingly the back end is slightly better bid despite more
paper to be issued on the longer end at tomorrow’s auction.”
Analysts however said demand for South African bonds,
particularly from offshore accounts, could start to wane if
inflation treks higher, raising the likelihood of interest rate
hikes.
The Reserve Bank left its repo rate unchanged last week,
saying risks to the inflation outlook were evenly balanced but
warned it would need to be more vigilant on inflation amid signs
price pressures were becoming broad-based.
“Bonds have recorded strong inflows (in the first three
months of the year) but the inflows could start to dissipate as
the year unfolds if indeed inflation is perceived as a problem
or if the market is more convinced of rate hikes,” Tradition
Analytics said in a note.
Recent government auctions have pointed to strong demand for
inflation-linked bonds, traders noted.
“I think what investors are saying is that we are
uncomfortable with where the rand is and the effect that will
have on inflation,” Chawasema said.
The rand is still up more than 4 percent against the dollar
since the start of the year, but has shed about 3 percent of its
value since late February’s five-month highs.
(Reporting by Stella Mapenzauswa; Editing by Susan Fenton)
