The rand plunged to a three-year low on Wednesday after a steep drop in the previous day, while international and domestic government bonds also fell, as fears grew of load shedding worsening during winter.
At 10.30am, the rand was trading at R18.78/US$, after hitting its weakest level since early May 2020 at R18.83/$ earlier in the day. On Tuesday, the rand had fallen 1.7%.
South Africa’s sovereign dollar bonds dropped, with longer-dated maturities falling the most. The 2052 maturity fell more than 1c to 82.4c in the dollar. The yield rose above 9%, its highest level in almost six months.
Struggling state-owned Eskom told parliament on Tuesday that there would be a 45-day delay in returning a generating unit online. The delay is likely to add further pressure on the grid during winter, when load shedding across most parts of the country is already more than 10 hours a day.
“South African bonds and the rand are underperforming their emerging market counterparts this morning,” Kieran Siney of ETM Analytics said in e-mailed comments.
“Until there is a concrete plan to resolve South Africa’s energy crisis that the market buys into, the underperformance will persist, notwithstanding the attractive yields on offer and deep undervaluation in the rand.”
The government’s local bonds also dropped, with yields on the benchmark 2030 bond rising 17 basis points to 10.5%, the highest level since December.
ETM Analytics said in a separate note on Wednesday morning that misleading headlines on Tuesday had sparked the market rout by giving “the impression that [Eskom] was losing control of the grid”.
“South Africa is in trouble, the grid is under pressure, Eskom does face multiple threats, but none of this is anything new,” it said.
The rand is also sensitive to global risks and caution has been mounting ahead of Wednesday’s US consumer inflation print scheduled for 2.30pm South African time. — Tannur Anders and Rachel Savage, (c) 2023 Reuters