30
04/11
S. Africa Bonds Fall as Oil, ECB Rate Outlook Curb Yield Allure
p class=”partner”> By Garth Theunissen
March 4 (Bloomberg) — South African bonds fell for a second day as oil prices above $100 a barrel stoked inflation concern and the prospect for interest-rate increases by the European Central Bank cut the yield allure of the nation’s debt.
The 6.75 percent bond due March 2021 fell 43 cents to 86.369 rand, raising the yield by seven basis points to 8.82 percent as of 2:37 p.m. in Johannesburg. South Africa’s 13.5 percent bond due September 2015 fell 30 cents to 121.155 rand, lifting the yield by seven basis points to 7.85 percent.
Crude for April delivery rose as high as $103.03 a barrel in New York, headed for a third weekly gain, as unrest in Libya renewed concerns that supplies will be disrupted. European Central Bank President Jean-Claude Trichet said yesterday that the bank may lift rates from a record-low 1 percent next month as “strong vigilance” is needed as inflation risks worsen.
“Inflation looks like it’s going to ratchet up faster than everyone anticipated because of rising food and fuel prices,” Ian Cruickshanks, head of research at Nedbank Treasury in Johannesburg, said by telephone. “With ECB rate hikes coming, the rate differential offered by South Africa is likely to be eroded and with it the source of funding that the local bond market has enjoyed over the past year.”
South African bonds rallied last year as net foreign purchases of local-currency debt surged to 61 billion rand ($8.8 billion) from 26.5 billion rand in 2009, according to the JSE Ltd., which operates South Africa’s exchanges. The gains came as developed-market interest rates, near zero percent, encouraged investors to seek higher-yielding alternatives in markets such as South Africa, where the benchmark rate is 5.5 percent, even after nine reductions since December 2008.
The rand appreciated as much as 0.4 percent to 6.8810 per dollar before trading 0.1 percent stronger at 6.9179. Against the euro, the rand weakened 0.4 percent to 9.6616.
–With assistance from Chris Kay in London. Editors: Ana Monteiro, Linda Shen.
To contact the reporter on this story: Garth Theunissen in London gtheunissen@bloomberg.net
To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net