Rand, bonds firm as cheer returns to markets

Johannesburg - The rand pulled back from its worst levels in nearly 13 years, firming by over half a percent, while bonds also strengthened on Thursday as cheer returned to global markets wrecked by fiscal uncertainty.

By 17:18, the volatile rand was 0.51% firmer to R11.7750/$, having spiralled past R11.8925 in the previous session - a level last seen in March 2002.

A ceasefire between Russia and Ukraine, and a sliver of hope that the debt deadlock between the euro zone and Greece could be resolved next Monday, soothed jittery investors who had rushed to sell their riskier, mainly emerging market assets on Wednesday.

Government bonds also firmed, following a switch bond auction earlier that saw the National Treasury offer investors a chance to swap short-term notes for longer-dated instruments.

The benchmark 2026 paper had shed 3.5 basis points to 7.585% by late trade.

"The auction was fairly successful. Just over R11bn worth of the shorter-dated bonds were sold," fixed-income specialist Alexa Nicolau of Rand Merchant Bank said.

The reprieve may be short-lived, however, weighed down by structural weaknesses in the economy and any lack of detail in President Jacob Zuma's parliament-opening speech, Nicolau said.

"South Africa has weakened more significantly than its peers and that's associated with the continued energy crisis," Nicolau added. "The effect of Zuma's speech on the market will probably not be big, unless he comes out with a bombshell that there is a solution to the energy crisis."

Eskom, which supplies about 95% of South Africa's electricity is battling to meet its daily demand of about 30 000 megawatts and has had to reduce demand through controlled power cuts.