Email of the day (2)
“Looking at the chart library, I was wondering if the chart of the South African 10-year government bond is correct ? It looks slightly odd to me. Apparently a lot of Japanese retail money might flow in to this sector because of the yield pick-up over JGBs. So worth keeping an eye on it. Do you have any views on what will happen to the S o uth African Rand which has been very weak lately (against the US dollar)? many thanks"
Eoin Treacy's view Thank you for this question which may be of interest to subscribers. We generally refer to the South African 15-year because there was a gap in coverage for the 10-year when no bonds with that maturity existed. (Also see Comment of the Day on September 13 th 2012).
The trend of South African government bond yields does suggest demand dominance and some of that interest may be coming from Japanese eager to profit from the Yen's devaluation. Both the 10 and 15-year yields hit new lows today and sustained moves above their respective 200-day MAs would be required to check potential for further contraction.
The US Dollar has held a progression of higher reaction lows versus the Rand since 2011 and has returned to test the region of the 200-day MA over the last few weeks. If the greenback's medium-term uptrend is to remain consistent, it will need to find support above or in the region of ZAR8.7.
The Rand found support in the region of the 2008 lows against the Yen from October and broke out of an 18-month range this week. A sustained move below ¥10.5 would be required to question medium-term scope for continued outperformance.