SA’s rand and bonds weaken on downgrade fears

JOHANNESBURG (Reuters) – The rand traded on the back foot against the dollar on Wednesday, lagging emerging market peers as a bleak economic outlook and expectations of ratings downgrades later this week applied pressure.

By 0638 GMT, South Africa's currency weakened 0.4 percent at 10.7475 to the dollar, threatening the 10.80 support level that held firm last week.

The rand is likely to trade with little impetus on Wednesday as investors await output data from the mining sector in the next session and credit ratings decisions from Fitch and Standard & Poor's on Friday, dealers said.

"Overall, the market seems to be positioning for the downgrade combined with a potential negative outlook," said Alexa Nicolau of Rand Merchant Bank in a market note.

With the rand facing negative sentiment from a five month strike in the platinum sector and the threat of more work stoppages during an annual wage negotiation period in South Africa, dealers said the currency could hit 10.80 soon.

The local unit was the biggest loser against the dollar in a basket of emerging market currencies tracked by Reuters.

Yields on government bonds also remained under pressure from hawkish central bank comments in the previous session.

The yield on the benchmark 2026 bond climbed 5 basis points to a week high of 8.415 percent, while the 2015 note rose 3.5 basis points to a five-week of 6.77 percent, as the prospect of tighter monetary policy hit the short-dated paper hardest.