Johannesburg - Government bonds rallied on Monday, pushing the yield on the 13-year benchmark to a 6-month low as demand resumed after a sell-off last week prompted by a downgrade from Fitch.
The rand also pulled back from last Friday's 5-week low against the dollar, although a renewed bout of selling could easily set it back on track towards last November's volatile 8.80-9.01 range.
The yield for the 13-year benchmark hit a trough of 7.08%, its lowest since late July 2012, and ended the session at 7.11%, down 5.5 basis points from Friday's close.
The shorter-dated issue due in 2015 shed 3.5 basis points to 5.315%.
The 13-year bond yield had climbed as high as 7.175% on Friday, the day after Fitch cut South Africa's sovereign credit rating to BBB from BBB-plus, citing a deterioration in the economic outlook.
"Today is probably a retracement from the overshoot we saw after the Fitch downgrade," Renaissance Capital bond trader Alvin Chawasema said.
"The rand is still near its worst sort of levels, but the bonds have always been in demand and the demand is persisting. The overshoot on Friday provided a cheaper entry level."
By 18:18 the rand was at 7.7130/$, 0.14% firmer than Friday's close at 7.7255/$.
The currency could still retreat towards last November's 3-1/2 year low of 9.01/$ during the first quarter of this year as global risk appetite remains shaky over an uncertain fiscal outlook for the US and debt problems in the euro zone.
"We would still view the external cyclical backdrop for the rand as negative, while recognising that the benefit from liquidity-driven support to capital flows into our financial markets could continue for some time," said Standard Bank strategist Bruce Donald.
On the home front, the rand is vulnerable to strikes in the farm sector, which may intensify this week, spooking investors shaken by the labour unrest that hammered the mining sector late last year and triggered a run on assets.
Follow Fin24 on Twitter, Facebook, Google+ and Pinterest.