Emerging-market jitters weaken bonds following Donald Trump’s comments

South African government bonds were weaker on Friday, as the benchmark R186 yield rose above the crucial 8.5% level, on a sharply weaker rand.

The yield on the R186 fell below 8% to 7.9% earlier in the year as prices rose on foreign inflows, which are now reversing.

Negative emerging-market sentiment, together with a firmer dollar, drove the rand to a five-month low against the greenback as foreign investors continued to de-risk.

The rise in the yield on the US 10-year treasury to a seven-year high of 3.1122% set the scene for another bout of emerging-market weakness, made worse by jitters surrounding the ongoing trade talks between China and the US as well as turmoil in Turkish markets.

Earlier, President Donald Trump toned down remarks in which he mentioned that the US might consider the “Libyan option” and “decimate” North Korea. This drew sharp reaction from Korean leader Kim Jong-un ahead of their scheduled meeting on June 12 in Singapore.

Media reports that Beijing will offer the Trump administration a package of trade concessions, including increased purchases of American goods, helped support market sentiment, but comments from Trump saying China and other countries have become “very spoiled” raised concerns of a more protracted negotiation, Dow Jones Newswires reported.

Like the rand, local bonds have borne the brunt of the shift in global risk perceptions. Analysts said interest in local bonds had waned as the market awaited signs that the dollar was set to stabilise at present stronger levels.

Sentiment was cautious amid higher inflation expectations and strong economic data, which backed a case for higher interest rates.

At 3.02pm, the yield on the R186 bond was at 8.58% from 8.5% and the R207 at 7.36% from 7.34%.

The rand was at R12.7820 to the dollar, from R12.5994.

The US 10-year treasury was last seen at 3.0901% from 3.1122%.