Rand rallies, with foreigners piling into South African bonds

South Africa’s rand headed for its biggest gain against the dollar in more than two months as a combination of positive local economic data and a global risk-off mood enticed investors to the country’s high-yielding bonds.

With a lull in the U.S.-China trade war reigniting the hunt for yield, foreign investors were net buyers of South African bonds on Tuesday for the third day running, according to JSE  data. Yields on benchmark 2026 government securities have dropped 13 basis points this week to 8.09%, still the highest among major emerging markets after Turkey and Lebanon.

Even though the world’s two biggest economies don’t appear to be moving closer to a trade deal, “there has been a sense of stabilization that could be supportive for EMEA high-yielders,” Credit Agricole SA strategists led by Paris-based Sebastien Barbe wrote in a note. The rand is “also benefiting from a better local environment,” though any rebound is likely to be temporary, they said.

The rand climbed 1.7% to 14.84 per dollar by 16:15 in Johannesburg, leading emerging-market currency gains and heading for its strongest close since Aug. 2.

Foreign investors bought a net 2.5 billion rand ($168 million) of South African bonds on Tuesday, bringing inflows in the past three trading days to 6.8 billion rand. South Africa’s economy expanded an annualized 3.1% in the second quarter, dodging a recession after it contracted by the same amount in the previous three months.