JOHANNESBURG Aug 23 (Reuters) – South African government
bonds rallied and yields fell on Thursday on expectations the
central banks of China and the U.S. could loosen policy further
to help their flagging economies, boosting demand for higher
yielding emerging market debt.
But underlying worries of contagion from the debt problems
in the euro zone continued to weigh on the rand, which gave up
earlier gains brought on by euphoria over U.S. Federal Reserve
minutes suggesting further stimulus for the world’s biggest
economy.
The yield for the benchmark bond due in 2015 ended
the day three basis points lower at 5.485 percent while that for
the longer-dated 2026 bond fell 4.5 basis points to
7.47 percent.
“The FOMC minutes last night gave a clearer indication that
the U.S. is still prepared to look at supporting the market and
there is also a possibility the People’s Bank of China will step
in and give more support,” said Marten Banninga, head of bond
trading at WWC Securities.
“If they’re still prepared to supply money to the market it
means cheap money that you get to buy higher yield. It’s the
carry trade scenario where cheap money will always chase
yields.”
Bonds have also been buoyed by data on Wednesday that showed
inflation slowed more than expected to 4.9 percent in July,
settling comfortably into a 3-6 percent target band and giving
the central bank room to cut rates further this year to boost
local growth.
Growth in Africa’s biggest economy will likely reach just
2.6 percent in 2012, the IMF said on Thursday, cutting its
forecast slightly from the 2.7 percent seen in May and saying
monetary policy should remain accommodative.
The rand, which has been buffeted by a relentless
wave of risk aversion over the euro zone debt crisis this year,
was down 0.88 percent against the dollar by 1629 GMT compared
with Wednesday’s close at 8.2200.
“Overall the rand seems destined to be captivated by the
wider 8.05-8.55 range and we really need to see the end of
August before things pick up again,” Standard Bank trader
Warrick Butler said in a note.
(Reporting by Stella Mapenzauswa)
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