Bond yields spike as rand goes into freefall

South African bond yields were higher on Monday morning as the expectation of an aggressive local rate hike gathered momentum.

At 9am‚ the benchmark R186 was bid at 9.800% and offered at 9.750% from a Friday close of 9.515%.

The middle-dated R207 was bid at 9.230% and offered at 9.265% from 8.955% previously.

Barclays Research said after selling R8bn of government bonds in December‚ foreigners bought about R1bn of local bonds and equities last week.

"If these investors are spooked by this morning’s dramatic rand price action‚ then there could be an even greater likelihood of a fresh bout of rand deprecation.

"The expectation surrounding local interest rates is likely to become more hawkish in the wake of the latest rand sell-off‚" the research team said.

According to Bloomberg data‚ the rand weakened to as much as R17.91 against the greenback in Asian trade. At 9am it was trading at R16.7238 from a close of R16.3009.

The continued weakness in the rand may lead the Reserve Bank to change its tone on modest interest-rate increases and hike more aggressively‚ despite weak economic growth. The Bank’s monetary policy committee meets on January 26-28.

- TMG Digital/BDlive