Risk aversion hits rand, bonds

Johannesburg - South Africa's rand fell more than 1 percent on Monday as investors globally shunned risky assets and data showing a narrowing budget deficit failed to encourage investors as public finances are expected to be under pressure over the next few years.

Government bonds also fell, with some dealers saying local assets were also hit by profit taking after strong gains last week.

South Africa's budget deficit narrowed in the first nine months of the financial year but it is expected to be hit by weak revenue over the next few years.

The markets were pre-occupied with the euro zone debt crisis and risk aversion re-emerged due to the lack of a breakthrough in Greece's talks with its private creditors on a debt swap. Athens needs to secure an agreement to gain access to its second bailout and avoid a disorderly default.

The rand fell more than 1.3 percent to a session low of 7.8750.

By 1520 GMT, it was trading at 7.86 to the dollar compared with Friday's New York close of 7.77.

"The rand is tracking the euro which has come under renewed pressure due to these euro zone debt concerns. There's not much in the way of fresh developments locally so it's really a global theme that's driving the rand," said Michael Keenan, an analyst at Absa Capital.

"Since the rand has strengthened considerably from the November lows in the past month we are going to see those rand bulls booking profits."

The rand has recovered since hitting a 2-1/2 year low of 8.61 to the dollar in November. It broke through resistance at 8.00 last week to touch three-month highs at 7.74 on Friday.

IGM said in a note that a possible correction toward 7.95-98 was on the cards.

On fixed income, South African bond yields - which move inversely to prices - ticked up. The yield on the 2015 bond was up 2 basis points at 6.47 percent and the yield on the 2026 issue rose 4 basis points to 8.185 percent.