Rand weakens on Nene exit rumours

By Colleen Goko

(Bloomberg) – South African bond yields climbed to the highest this year and the rand weakened to a one-month low as traders digested news that Finance Minister Nhlanhla Nene has offered to resign, adding to risks in a week that also sees a review of the country’s credit ratings.

The rand slumped 1.4 percent to 14.9747 per dollar by 8:57am in Johannesburg, leading emerging-market currency declines. Yields on benchmark 2026 bonds climbed five basis points to 9.29 percent, the highest since December, when a leadership struggle in the ruling African National Congress roiled markets.

Nhlanhla Nene
Nhlanhla Nene speaks during an event to launch commemorative South African rand banknote and coins in Pretoria. Photographer: Waldo Swiegers/Bloomberg

Reports that Nene may be on the way out days before Moody’s Investors Service is scheduled to assess the country’s credit rating, and just two weeks before a crucial mid-term budget statement, is adding to risks for the rand at a time when rising US rates are weighing on emerging-market assets.

“Market sentiment is really bad to begin with,” said Hans Gustafson, a Stockholm-based emerging-market strategist at Swedbank AB. “A stable political environment is needed and a resignation of the finance minister would add to an already grim and challenging situation.”

One-week implied volatility for the dollar versus the rand spiked 286 basis points to 21.6 percent as options traders positioned for wider swings in the currency. Short-term volatility is at the highest relative to the three-month measure since mid-August, when a crisis in Turkey sparked a plunge in emerging-market assets.

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