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Johannesburg - The rand softened against the dollar on
Monday and government bonds followed suit as risk sentiment turned sour after
electoral upsets in Europe raised concerns that bail-out plans for the
debt-ridden region might veer off track.
Europe is a key market for South African exports and a
gloomy economic outlook there tends to weigh on the rand.
By 06:50 GMT the rand was trading 0.392% weaker at R7.8599
against the dollar from Friday’s close at R7.8350.
“We’re following the euro which has weakened quite a lot on
all those elections results over the weekend,” RMB trader Jim Bryson said.
The rand’s weakness mirrored that of the euro, which was on
the back foot against the greenback after elections in Greece and France raised
fresh concerns the eurozone’s hard-earned bailout and austerity steps could
fall apart.
“It is a UK holiday today which may reduce the impact
somewhat of these elections,” Bryson added. “We might just have a bit of a
quieter day than normal.”
The local debt market was not spared as investors dumped
emerging market assets in favour of so-called “safe havens” such as US
Treasuries.
The yield on the three-year benchmark bond added 3.5 basis
points to 6.41%. The yield for the equally heavily traded 2026 issue climbed
three basis points to 8.125%.
“It is likely that in the day ahead we see local bonds and
equities both come under pressure as more uncertainty and elevated risk is
priced in,” Tradition Analytics said in a note.
“As risk assets come under pressure owing to increased uncertainty of the future of the eurozone, local bond yield spreads over US treasuries are likely to climb again.”
