Johannesburg - The rand weakened against the dollar on
Friday after Moody’s cut the government’s bond rating by one notch to Baa1 from
A3, but bonds were supported by their imminent accession to Citi’s prestigious
World Government Bond Index (WGBI).
The ratings agency cited worries about the government’s
institutional strength and South Africa’s investment climate and political
stability. The credit outlook remains negative.
The rand was trading at R8.24 against the greenback at 06:36
GMT compared to Thursday’s R8.2260 New York close.
On Thursday, the currency dropped 0.6% to R8.2850 following
the Moody’s announcement.
Despite the Moody’s downgrade, traders said South Africa
could still receive foreign inflows of anywhere between $2bn - $8bn from funds
that track the WGBI, which formally admits South African bonds on October 1.
“We expect to see interesting trade today, basically looking
for a little bit of rand strength on the back of the WGBI inclusion,” said
Brigid Taylor, head of institutional sales at Nedbank.
“But investors remain relatively cautious as we go into
October with the potential for another downgrade around the medium-term budget
statement which will happen at the end of October.”
Analysts say Moody’s announcement will not affect South
Africa’s inclusion in the World Government Bond Index because it had already
met the entry criteria three months ago.
Expulsion from the WGBI would only come with a rating below
BBB- from S&P and Baa3 from Moody’s.
Government bonds were slightly weaker, giving back some of
their gains from the previous session on the back of the downgrade.
The yield on the 3-year bond added 1 basis point to 5.33%.
That on the 14-year paper added the same amount to 7.34%.
“The bond market reflecting some of that concern around the
downgrade from Moody’s as well as the potential for a further downgrade.
However the WGBI inclusion does keep it anchored at these kind of levels,”
Taylor said.
Treasury is selling a total of R800m spread over
inflation-linked I2025, I2050 and I2038 government bonds at 09:00 GMT.
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