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.
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.