Rand touch firmer after Spanish auction

2012-04-19 12:57

Johannesburg - The rand was firmer against the dollar in quiet midday trade on Thursday.

Dealers said the rand had gained after the Spanish bond auction was viewed as successful, even though the yield was higher than that of the previous auction.

"Trading today so far has been dead. We expected a successful Spanish bond auction, as we believed that the European Central Bank would be active to stop any surprises.

"Kicking the sovereign debt crisis can down the road can only be maintained for so long, as that can is looking pretty dented by now," a local trader said.

At noon local time the rand was bid at R7.8108 to the dollar from its previous close of R7.8366 and Monday's close of R7.9368. It was bid at R10.2628 to the euro from R10.2840 before, and at R12.5339 against sterling from R12.5562 previously.

The euro was bid at $1.3147 from its previous close of $1.3122 after sinking to a two-month low of $1.2993 on Monday.

News emerged from Citigroup on Tuesday that SA government bonds were entering a monitoring period for inclusion in their World Government Bond Index (WGBI) in October.

This saw the rand and local bonds rally significantly, with the currency appreciating 16 cents to R7.82/dollar after the announcement and the bond curve strengthening 21 basis points in the benchmark R157, 25 basis points in the R186 and 27 basis points at the very long end.

The rand bounced off the R7.78 per dollar level resistance level on Wednesday after the JSE released data showing that foreigners bought a net R7.79bn of South African bonds including repo transactions on Tuesday.

This was more than a third of the year to date buying of R22.337bn of local bonds including repo transactions. In 2011 they bought R37.501bn of local bonds.

Spain's government was forced to pay investors more in a key auction of 10-year bonds on Thursday, but managed to keep it below the psychologically important 6% level.

The Spanish government paid a yield of 5.743% in the auction of benchmark 10-year government bonds, compared with 5.403% at the previous comparable auction on January 19.

The European Central Bank (ECB) has helped to bring down yields on bonds of fragile eurozone nations by offering huge, cheap loans to the region's banks, which in turn have snapped up sovereign bonds.

The ECB extended cheap, three-year loans of more than €1 trillion  to eurozone banks in two operations in December 2011 and February 2012 to avert a dangerous credit squeeze to the European banking system, after American money market funds had withdrawn from European money markets during the second half of last year.

Dow Jones Newswires reported the yen maintained its downward trend against the dollar and euro on Thursday in Asia, amid continuing expectations for further easing measures by the Bank of Japan as the central bank's governor reaffirmed its commitment to easing to meet its inflation goal.

The yen was also kept under pressure earlier in the day after Xinhua News Agency reported that China would steadily boost interbank liquidity through an increase in reverse repurchase agreements and cuts in banks' reserve requirement ratios, among other measures.

The report cited an unnamed central bank official.