Rand loses 20c to dollar as global safe-haven trade drives bond yields down

The rand lost more than 20c against the dollar on Tuesday afternoon as the greenback convincingly broke through $1.16 to the euro.

Global bond yields were off intraday lows, after earlier falling sharply as concern about escalating political and economical problems in the eurozone drove investors to the safety of capital markets.

Italian government bonds remained under pressure due to the country’s political turmoil, while the yield on the benchmark German 10-year bund was down an almost unprecedented 20% at one point.

The UK 10-year gilt yield dropped nearly 6%, while the benchmark US 10-year bond yield fell to 2.8713% from 2.9277%, after hitting a seven-year high of 3.12% only a week ago.

The rand was at risk of pressure from the political uncertainty in Italy, which was encouraging risk aversion across the markets, FXTM analyst Hussein Sayed said.

This was despite the rand benefiting in earlier trade from the steps the Turkish central bank took to stabilise the lira at the beginning of the week. The lira traded at 4.61 to the dollar after crossing 5.00 earlier.

“Italy’s political drama drove the risk-off mood felt across the globe early on Tuesday as investors sold risk assets and bought US treasuries,” Sayed said.

The prospect of a sudden and unexpected change in Spain’s government caught many investors unaware, sending Spanish stocks sharply down and bond yields up, Dow Jones Newswires reported.

Spanish legislators will decide on Friday whether to oust Prime Minister Mariano Rajoy and replace his centre-right government with one led by the centre-left Socialist Party, in a confidence vote that has injected a dose of uncertainty into Spanish politics and spooked some investors, the newswire said.

At 3.03pm the rand was at R12.6236 to the dollar from R12.4648, the euro at R14.6118 from R14.487 and the pound at R16.7625 from R16.5968. It earlier reached the day’s worst level of R12.68 to the dollar.

The euro was at $1.1574 from $.1624.

The benchmark R186 government bond weakened in line with the rand, reflecting the risk-off environment. It was bid at 8.53% from 8.43% and the R207 at 7.365% from 7.25%.

The US 10-year treasury was last seen at 2.8895% from 2.9277% and the UK 10-year gilt at 1.2682% from 1.3223%. The German 10-year was at 0.3352% from 0.3488% after earlier falling to 0.1838%.