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Rand hits 2-year low, bonds stumble as Turkey contagion spreads

The rand slid earlier in the day more than 10% to hit a session low of R15.7000 per dollar, its weakest since June 2016.

Picture: Christa Eybers/EWN

JOHANNESBURG - The rand plunged to a 2-year low against the dollar in early trade on Monday and government bonds weakened sharply as massive falls in the Turkish lira spread to other emerging market currencies.

The rand slid earlier in the day more than 10% to hit a session low of R15.7000 per dollar, its weakest since June 2016.

As of 0618 GMT, the turbulent unit had clawed back much of its losses to be 2.7% weaker at R14.4600. Momentum indicators tracked by analysts show the move thrust the rand into oversold levels, suggesting a correction is on the cards.

In fixed income, the yield for the benchmark instrument due in 2026 was up 13 basis points to 8.985%.

“Emerging markets remain at the mercy of an unfolding global trade war, and the associated effects of the Turkish president’s hard-line approach to the US, a lack of liquidity in the far east session and various local factors manifesting themselves in the price,” Nedbank analysts wrote in a note.

The lira has lost more than 40% of its value this year, largely over worries about President Tayyip Erdogan’s influence over the economy, his repeated calls for lower interest rates in the face of high inflation and worsening ties with the United States.

South Africa’s dollar bonds also suffered, with many issues losing around 1.5 cents to hit their lowest levels in around six weeks, according to Tradeweb data.

Meanwhile, the average yield premium to hold the country’s debt over safe-haven US Treasuries rose to 305 basis points, having added 33 bps in the past week.

South Africa is highly susceptible to global investor sentiment as the country relies on foreign money to cover its large budget and current account deficits.

LISTEN: SA economy in real trouble

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