Soft Commodities Hurt South African Debt

South African bonds are on course for their worst returns in eight months, with more pain probably ahead, squeezed between tumbling commodity prices and an emerging-market selloff sparked by the Federal Reserve.

Local-currency debt fell in September, what would be the first monthly decline since January, according to Johannesburg Stock Exchange indexes. The securities lost 6.1 percent for dollar investors in the period, the most after Brazil among 31 developing nations tracked by Bloomberg.

Foreign investors were net sellers of South African bonds for the third straight month in September amid mounting speculation the Fed is prepared to raise interest rates at a faster pace than some investors anticipated. That’s putting pressure on the rand, which slid 5 percent versus the dollar in the period, at a time when falling commodity prices including platinum and gold weigh on exports and growth prospects.

“South Africa is bracketed both as an emerging market and as a commodity exporter, so it’s a double whammy,” Mohammed Nalla, head of strategic research at Nedbank Group Ltd., said by phone from Johannesburg on Sept. 26. “It boils down to your rand view, and in the longer term there is still scope for more rand weakness,” which may affect yields, he said.

via Bloomberg

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza