Rand slumps for 4th day as bonds extend selloff

Johannesburg – The rand slumped for a fourth day, falling to a 10-week low against the dollar as a global bond selloff intensified on speculation President-elect Donald Trump’s spending pledges will fuel inflation and trigger US rate increases.

The currency fell to as low as R14.51/$  before recovering to trade at R14.39 to the greenback just before 17:00. Yields on benchmark government bonds due 2026 climbed 9 basis points to 9.27%, the highest in more than five months. The yield on the country’s 10-year dollar bonds jumped 10 basis points to 4.99%, the highest since May.

Sovereign bonds extended a record debt selloff, lifting the 30-year US Treasury yield above 3% for the first time since January. Foreign investors sold a net R9.9bn of South African bonds last week, according to JSE data.

“A weekend normally brings some calm to agitated markets but we still feel some further rand weakness may be in order,” John Cairns, a currency strategist at Johannesburg-based Rand Merchant Bank, said in an emailed note. “It does not seem like it will take much to get markets panicking again.”

Wichard Cilliers, dealer at TreasuryOne, said on Monday that markets have finally taken their stance on the Trump presidency.

“With US bond yields rising quite sharply, we have seen emerging market bonds taking a hammering and the rand has sold off in relation to that,” he said in a note on Monday.

“The correlation between rand strength and US equity strength has broken as the Dow Jones enjoyed their best week since 2011 after the Trump win.

“The Trump campaign was one of higher growth and higher rates, which the market could have decided to pre-empt a strong hiking cycle by the US Fed. This is all speculation and can hardly be seen as concrete as we await President Trump and his policies next year January.

“All this talk of Trump and possible policies he can implement has caused some uneasiness and uncertainty in the market,” he said. “We saw before the election that the rand was trekking down in anticipation of a Clinton win and more emerging market certainty.

“We can expect the rand to act adversely to any uncertainty in the market and the next month could be a rough one for the rand, with credit rating decision and the US Fed interest rate decision coming up.”