Rand recovers as Italian tension abates somewhat while global bond yields rise again

The rand was steady at firmer levels on Wednesday, and local bonds were mixed, with the euro gaining lost ground on the dollar as the Italian political crisis continued to loom large over market sentiment.

This followed reassurances from the European Central Bank (ECB) that it would continue to wind down its bond-buying or stimulus programme.

ECB officials said the central bank would in all likelihood announce a final decision on the matter next month, and that Italy should not count on the ECB’s help if it violated the EU’s budget rules, Dow Jones Newswires reported.

The euro has been hammered by a stronger dollar over the past week amid concern that a populist government in Italy might consider exiting the currency union.

Italy’s president, Sergio Mattarella, has yet to give approval for a new government following elections in which the two main populist parties — the Five Star Movement and the Northern League — won 50% of the vote.

“If a government can be formed that receives the stamp of approval from Mattarella and is not seen as posing a threat to Italy’s place in the eurozone, then this will come as a relief to markets in the near term,” Oanda analyst Craig Erlam said.

US GDP was revised down to a 2.2% annual growth rate in the first quarter of 2018 from an initially reported 2.3%, on weaker inventories, providing little further support for an uptick in the dollar.

The US added 178,000 private-sector jobs in May, payrolls processor ADP said on Wednesday, lower than the predicted 190,000.

At 3pm the rand was at R12.5637 to the dollar from R12.6935, at R14.6057 to the euro from R14.6521 and R16.6996 to the pound from R16.8205.

The euro was at $1.1625 from $1.1539.

The R186 was bid at 8.515% from 8.52% and the R207 at 7.36% from 7.345%.

Global bond yields rebounded on the day, with the German bund and UK gilts erasing a fair bit of Tuesday’s losses.

The German 10-year bund rocketed to 0.3419% from 0.2664% and the UK 10-year was last seen at 1.2417% from 1.1933%.

The benchmark US 10-year yield rose to 2.8459% from 2.7756%.