Rand leads global currency gains, bonds hit pre-Nenegate levels

Johannesburg - South African benchmark government bonds gained, driving yields to levels last seen before President Jacob Zuma fired Nhlanhla Nene as finance minister in December, while the rand led global currency gains as foreign investors piled into local stocks and bonds.

Yields on government rand bonds dropped for a second day as global markets rebounded from the initial Brexit fallout amid speculation that policy makers around the world would act to mitigate the negative impacts of the UK decision to leave the European Union.

By 13:14 in Johannesburg, the benchmark December 2026 yield was down 9 basis points to 8.8%, the lowest since December 7, just two days before Zuma replaced Nene with a little-known lawmaker as finance minister, sending the rand and bonds to record lows.

The rand gained 1.2% to R15.0100/$ as all but two of the 31 major and emerging market currencies tracked by Bloomberg strengthened. It was the biggest gainer among emerging markets, after two days at the bottom of the pile. Against the pound, it rose a seventh day, advancing 0.4% to R20.1723, the strongest level since August. The rand is set for its best month against the UK currency since at least 1996, having strengthened 11.3%.

“There’s a rising tide that lifts all boats,” said Mohammed Nalla, head of strategic research at Nedbank Group in Johannesburg. “You’ve had a phenomenal appetite for local bonds and equities over the last several weeks, that’s accelerated even further in the wake of Brexit.”

Offshore investors continued to pile into South African assets, with inflows into the stock markets at the longest streak since 2009 and purchases of government bonds at R14.7bn ($980m) so far in June, compared with outflows of R6.8bn in the same period last year.

“The global search for yield is coming through,” Nalla said. “The expectations around the hikes from the Fed, they haven’t just flattened to zero, they’re now pricing in the potential for rate cuts out of the US as well, which is a complete about-turn.”

Fed Governor Jerome Powell warned that global risks have shifted further to the downside after the UK vote, introducing new uncertainties that may require a reassessment of monetary policy. South Korea announced a fiscal stimulus package on Tuesday and Bank of Japan chief Haruhiko Kuroda said on Wednesday that more funds can be injected into the market should they be needed.

South Africa’s benchmark stock index gained for a second day, adding 1.5% to erase losses in the two days after the Brexit vote. Naspers [JSE:NPN], which owns a stake in China’s Tencent, and Anglo American [JSE:AGL], a diversified miner, led the advance.

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