Rand withers as investors flee

Johannesburg - The rand was on the back foot against the dollar early on Friday and was poised to close the week at its weakest level in two and a half years as investors filed out of emerging markets they perceived as risky.

Government bonds are being sold off in the bleak trading environment.

The rand fell to a new 2011 low this week at R8.61 to the dollar, and a deteriorating outlook for the global economy is pushing risk-averse investors into short-term and traditionally haven securities such as the dollar.

By 06:30 GMT, the rand had lost 0.6% to R8.5419 to the dollar, from a R8.4910 close on Thursday.

Yields on government paper were at seven-month highs at 8.725% on the 15-year issue and the four-year bond was testing the psychologically key 7% area.

Auction results of inflation-linked bonds are due at 09:00 GMT and yields are likely to continue the lower trend as inflation hit the central bank’s target at 6% in October.

“Bets are off at the moment. We’re seeing a lot more scurrying for safety,” said Paul Chakaduka of Global Trader.

“The biggest worry is Germany failing to get a subscription for their bonds. It was very disappointing and in that a lot of people have indicated they're looking for higher yields but not looking to take on any further risk on sovereign debt until a solution in Europe," Chakaduka said.

German bond prices rose this week after a poorly subscribed indicated that investors are wary of debt from one of Europe’s firmest economies.

Finance Minister Pravin Gordhan and Deputy Nhlanhla Nene are due to speak at around 17:30 GMT and could give insights on South Africa’s economic prospects in light of the eurozone credit crisis.