Johannesburg - The rand and government bonds weakened on
Friday, after Fitch cut South Africa’s credit rating overnight, citing weak growth,
policy uncertainty and labour unrest. The downgrade, on the heels of similar moves by Moody's and
Standard & Poor's late last year, is the latest bad news for investors,
already unnerved by often-violent strikes in the mining and farm sectors.
Bond yields, particularly the shorter end of the curve, were
also supported by data showing manufacturing output beat forecasts in November,
all but closing the door to monetary loosening at the central bank's policy
meeting later this month.
The yield for the 13-year benchmark added 6 basis points to
7.165% while the paper due in 2015 was up 5 basis points at 5.37%.
Fitch cut South Africa's sovereign credit rating to BBB from
BBB-plus, saying the economic growth performance and prospects had deteriorated,
affecting public finances and fuelling social and political tensions.
It said mining strikes and social tensions could pressure
the government to increase social spending, reducing already tight fiscal space
and hurting growth.
Fitch's move could also hit appetite for South Africa
assets, which were heavily sold off late last year after wildcat strikes hit
mining output and left more than 50 people dead.
"As things stand there are far better opportunities out
in the world with less risk attached than South Africa," said Standard
Bank trader Warrick Butler.
"I would not be surprised to see some investment cash
start to trickle out of our markets, especially at a time when bond yields are
at such lows."
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