Foreign Investor Demand Helps South African Bonds Rally

Foreign Investor Demand Helps South African Bonds Rally

Buoyed by foreign-investor demand after the Federal Reserve refrained from reducing asset purchases, South African bonds rallied, set for a fourth weekly advance The rand weakened, paring its third weekly gain, reports IOL.

Most of the South African bonds were bought by foreign investors bought in more than three months as global debt rallied with stocks and commodities after the Federal Open Market Committee said on Sept. 18 it wants more evidence of an economic recovery before paring its $85 billion-a-month bond-buying program. Even as it adjusted inflation estimates upwards, South Africa’s central bank left its repurchase rate at 5 percent.

“While the Monetary Policy Committee statement put upward pressure on local yields and rates, it was not enough to reverse the impact of the FOMC’s decision to not taper in September,” Carmen Nel, a fixed-income analyst at Rand Merchant Bank in Johannesburg, told IOL. “With the timing of tapering being pushed out, global market commentators have become outright bullish on risky assets.”

Yields on benchmark bonds due December 2026 saw a drop of 12 basis points, or 0.12 percentage point, to 7.92 percent by in Johannesburg, bringing the decline last week to 24 basis points. And the rand depreciated 0.4 percent to 9.7438 per dollar, paring its gain this week to 1.9 percent, reports IOL.

Foreign investors bought a net 2.72 billion rand ($280 million) of South African bonds in one day, the most in a day since June. According to JSE Ltd. data, this brought inflows for the month to 13.5 billion rand.

South Africa’s central bank kept its average inflation forecast for this year unchanged at 5.9 percent. But it raised next year’s projection to 5.8 percent from 5.5 percent, and predicted 5.4 percent in 2015. In August, inflation accelerated to 6.4 percent from 6.3 percent in July.