JOHANNESBURG — South African assets were on a firmer ground yesterday as the rand made early gains on the dollar, which was still under pressure from expectations of continuing weakness in the US economy.
Government bonds were stronger, especially shorter dated paper, as the market deferred expectations for an interest rate rise, given the gloomy economic outlook.
The spread between the two benchmark bonds, the 2015 and 2026, hit a new record of 131 basis points as the 2015 bond becomes more attractive to investors on rate expectations.
Investors will also focus on June manufacturing data due at 1100 GMT. Manufacturing growth in Africa’s largest economy is expected to have slowed to 0,4% in June from a year earlier, according to a poll of 10 economists by Reuters. The sector contributes about 16% of GDP.
The rand was at 7,1455 to the dollar by 0826 GMT, up 1,58 on Wednesday’s close in New York. It earlier hit a session high of 7,1176.
Traders are bracing for another volatile session after very choppy trade on Wednesday as investors attempt to figure out where best to put their money during the global rout.
“The rand is firming on the euro/dollar bounce and positive stock futures, but expect it to remain volatile and swing with wider market flows,” said emerging market analyst Christopher Shiells of Informa Global Markets.
Expectations that foreigners will keep buying South African bonds with cheap US dollars is supportive of the rand and helped cap losses overnight, IGM’s Shiells said.
Bonds were being bought in early yesterday trade, pushing yields lower.
The local forward rate agreements market — contracts used to gauge interest rate expectations — is pricing in a slight chance that the Reserve Bank will cut interest rates sooner than raising them.
Yields on the benchmark four year note dropped 2,5 basis points to 6,895%, and the 15 year issue.