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Johannesburg - The rand weakened against the
dollar on Tuesday, pulling back from a week-long firming trend as headlines out
of Europe hit sentiment towards risky assets.
The rand is a heavily traded emerging market currency and
susceptible to risk-off, risk-on trade, making it volatile.
Government bonds followed the negative market sentiment but the
Treasury managed to attract decent demand at an auction earlier in the session,
which helped bonds off the day’s lows.
Investors are taking positions based on developments in Europe,
where the world is watching to see whether the European monetary union will
collapse or manage to save itself from its debt crisis.
Ratings agency Standard and Poors’ warned late on Monday about the
credit rating of 15 euro zone countries, making already jittery investors sell
risky holdings in Tuesday’s local session.
The rand pulled back from a previous three-week high to trade at
8.1275 against the dollar on the day, after closing at 8.0624 in the New York
market on Monday.
Yields on government debt rose during most of the session and were
up 4 basis points to 6.705 percent on the 4-year bond and 5 basis points on the
15-year issue to 8.41 percent an hour before trade closed for the day.
“We had a weaker rand before the auction and then had supply come
into the market, which added pressure. We’re off the worst levels of the day
though because the auction saw good demand,” said Daniel Sabiston from Absa
Capital.
Treasury managed to sell the 2.1 billion rand in 10 and 30-year
paper offered at auction at lower yields, even with the gloomy market sentiment.
Demand was also sustained from last week’s sale, a result analysts
say the government will be more than happy with in the current market
environment.
Traders are reporting very light volumes in recent sessions, with
only 6 billion rand going through the market on Monday, compared to about 18-20
billion rand daily turnover in normal liquidity.
