Filomena Scalise

Johannesburg - Yields on South African government debt rose on Tuesday after a poor bond auction, reflecting investors' concerns about global growth and a shift of money to safer assets such as US Treasuries.

The rand extended losses on the poor sentiment to trade at a month-low against the dollar.

Earlier on Tuesday, the Treasury sold R700-million each of its 2031, 2036 and 2048 paper, more of the same bonds sold at last week's auction.

However this week longer-dated paper cleared at higher yields and demand dropped.

By the official close on Tuesday, yields on the 2026 bond, the benchmark for the longer end of the curve, ended five basis points higher at 7.66 percent, while the shorter 2015 paper edged up only half a basis point to 5.475 percent compared with Monday's closes.

Yields rose to a week's high across the curve.

“A weaker auction caused back-end offering of bonds. That's the reason why you saw the curve steepening a touch,” said Marten Banninga, a fixed income trader for Johannesburg-based World Wide Capital Securities.

Investors globally are fretting about the fiscal cliff budget battle in the United States and the twists and turns of the euro zone crisis, dealers said.

“Lower demand can be linked to the US fiscal deficit. If you add that to the uncertainty on euro zone growth, that's most likely why there's so little demand in the market,” Banninga said.

Global markets took a hit on Tuesday from a public EU-IMF disagreement on terms for a Greek bailout, re-igniting concerns about the euro zone crisis.

The rand reacted to the negative sentiment by giving up one percent against the dollar to 8.8290, breaking out of a month-long range to hit its worst level since October 15.

After breaking through 8.80 support, the rand may re-test 8.82 and then 8.90 rand after that, which it bounced from in early October, as a combination of domestic and global factors weighed on the currency.

Forex strategists say the rand remains exposed to any shift in global risk sentiment by the increased need for external funding for its “twin deficits” - the current account and budget gaps - which have widened beyond previous expectations.

The current account showed a 6.4 percent hole in the second quarter of the year, the widest deficit in 4 years, while the budget gap is expected to expand to 4.8 percent of gross domestic product this year.

South Africa will release retail sales data on Wednesday, one of only two positive indicators in the local economy recently.

Expectations are for lower sales growth but for consumers to have continued propping the economy in September. - Reuters