Cape Town - South African bonds fell for a second day, driving yields to two-week highs, on speculation slowing growth is limiting the Reserve Bank’s room to combat rising prices.
The rand weakened.
South Africa’s manufacturing gauge fell below the level that signifies expansion for the first time in six months, while vehicle sales contracted for a second month, reports showed yesterday.
The central bank has left its benchmark repurchase rate at 5 percent since a surprise 50 basis-point cut in July 2012 even as inflation breached its target for a second month in August.
“Yesterday’s local data was disappointing and supports our view that the Reserve Bank will keep rates on hold as long as possible, despite the less favorable inflation backdrop,” Carmen Nel, a Cape Town-based fixed-income analyst at Rand Merchant Bank, said in an e-mail.
Higher inflation erodes real returns on fixed-interest investments including bonds.
Yields on benchmark 10.5 percent bonds due December 2026 climbed 11 basis points to 8.12 percent at 12:35 p.m. in Johannesburg, the highest level on a closing basis since September 18.
The rand dropped 0.1 percent to 10.1317 per dollar after gaining 0.4 percent earlier.
The currency advanced before a report tomorrow that may show claims for unemployment benefits in the US rose last week as a partial government shutdown threatens a recovery in the world’s biggest economy.
The Federal Reserve surprised the market on Sept. 18 by maintaining its monthly bond purchases after saying since May it may taper stimulus if employment improves.
Initial jobless claims rose to 314,000 in the week to September 28 from 305,000 the previous week, according to the median estimate of 48 economists in a Bloomberg survey.
The economy probably added 180,000 jobs in September, compared with 152,000 the previous month, a separate report may show October 4.
“The market is consolidating ahead of the US jobs data,” Mohammed Nalla, head of strategic research at Nedbank Group Ltd., said by phone from Johannesburg.
“We’re still fairly negative on the rand.”
South African vehicle sales fell 1.5 percent from a year earlier to 54,281, the Pretoria-based National Association of Automobile Manufacturers of South Africa said yesterday.
Exports dropped 75 percent as labor strikes hit output.
The seasonally adjusted purchasing managers’ index fell to an eight-month low of 49.1 from 56.5 in August, Johannesburg-based Kagiso Tiso Holdings said.
The median estimate of seven economists surveyed by Bloomberg was 54.
The central bank remains concerned about the effects of strikes on the economy, Governor Gill Marcus said yesterday in a speech to diplomats in Pretoria. - Bloomberg News