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It’s Difficult Not to Like South African Government Bonds at the Moment

Foreign investors have been net sellers of government debt every day so far in February, offloading a cumulative $1.7 billion, according to daily flows data reported by exchange operator JSE. Over the same period, demand at the weekly bond auction has surged, with Tuesday’s sale drawing the most orders in almost two years. The explanation for the disconnect is the rand. The South African currency has been falling this year, racking up a loss of 5.3%. Only the Argentine peso has performed worse among 23 emerging-market currencies tracked by Bloomberg. The nation’s local-currency bonds have been the worst in emerging markets over the past month in dollar terms, with a loss of 6.3% — compared to an average 1.4% decline for peers in a Bloomberg index. For rand investors, the return has been flat. The yield on South Africa’s 10-year notes is close to 11%, eclipsed in Europe, the Middle East and Africa only by Turkey, Russia, Nigeria and Lebanon. The next highest yield available in the region is Hungary, which offers around 8.1%. That enticing yield has some banks, including Deutsche Bank AG and JPMorgan Chase & Co., predicting a rally from here.