Johannesburg - The rand dipped below the psychologically key level of R9/$ overnight as the Bank of Japan's massive stimulus programme reawakened appetite for riskier assets such as South African bonds.
Government bond yields were close to record lows after offshore investors bought R1.8bn worth of debt on Monday.
The yield on the 2031 issue was at 7.555% after plunging to a record low of 7.546% on Monday, while that on the 2026 issue was at 7.015%, close to levels last seen in 2008.
The 2015 bond was trading at 5.305%, up slightly from a six-week low of 5.294% reached on Monday.
"An announcement of further easing by the BOJ and the publication of weak employment numbers in the US last week saw a decline in safe asset yields and a resurgence of the search for yield, which has boosted investments in South African bonds," analysts at Absa Capital wrote in a note.
The rand was at R8.9750/$ at 08:25, slightly firmer than its close in New York on Monday, its best showing since the beginning of March.
The rand could strengthen further to as high as R8.80/$ or the mid R8.70s, analysts said, although South Africa's weak fundamentals, including a large current account deficit, threaten to drag it back to weaker levels.
"There is very little reason now why the rand cannot move to stronger levels in the coming weeks," Standard Bank trader Warrick Butler said in a research note.
"The risks are that the market has moved too quickly and that the fundamentals (current account) are still very poor."
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