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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