Rand weaker on tapering speculation

THE RAND and government bonds weakened to their lowest in over two months yesterday on expectations that the US would reduce monetary stimulus sooner than expected.

The rand, in a three-week losing streak, fell to R10.4585 a dollar in the session.

At 5pm, the local unit rallied to be bid at R10.3579, less than 1c weaker than at the same time on Monday. Since Friday’s better-than-expected US jobs data, speculation that the Federal Reserve might reduce its monthly bond-buying programme sooner than previously thought has weighed on emerging market assets.

Investors are selling South Africa more aggressively than its emerging market peers because of domestic risks such as labour unrest and gaping holes in the current account and budget deficit.

Yields on government debt rose to early September levels on both the benchmark 2026 bond and the 2015 note.

“Some people now think [tapering] will be brought forward to December after being expected in March,” Jonathan Myerson at Cadiz Asset Management said. ”Tapering makes countries with the type of deficit that we have particularly vulnerable.”

The Treasury received higher demand for R2.35 billion worth of 2023, 2030 and 2041 debt earlier in the session, with portfolio managers seeing value in the higher yields.