Rand steadies after slide to three-week lows

The rand firmed slightly on Friday morning but remained near its weakest in three weeks after a jump in US treasury yields triggered a sharp slide in the previous session.

At 0645 GMT the rand was 0.1% stronger against the dollar at R14.99, having slipped on Thursday to its weakest since February 4 at R15.01 as the US currency topped multi-month highs.

South Africa’s rand enjoyed a brief rally, reaching a 13-month best, after Wednesday’s budget speech showed a slightly faster economic rebound.

But the cheer soon faded as investors, who have been lured to local assets by the high yield on offer, began to price in an expected unwinding of fiscal and monetary stimulus in the US and elsewhere among developed economies.

Government bonds in the United States, particularly US Treasuries, have become a focal point for global markets after traders aggressively moved to price in earlier monetary tightening than signalled by the US Federal Reserve and peers.

The benchmark 10-year Treasury yield surged above 1.6% overnight for the first time in a year.

“The high real yields SA offers are hard to come by these days, meaning they will continue to attract hot money until interest rate differentials begin to narrow once more, but they do hold significant risk and will experience high degrees of volatility,” said economists at ETM Analytics.

Local trade figures for January, due at 1200 GMT, will give investors further indications on the pace of South Africa’s recovery.

Bonds opened weaker, with the benchmark 2030 government issue adding 12 basis points to 9.12%, its weakest in nearly four months.