South Africa’s cabinet changes rattle bonds, rand extends losses

JOHANNESBURG (Reuters) – South African government bonds weakened and the rand extended losses against the dollar on Tuesday after President Jacob Zuma reshuffled his cabinet and the weekly bond auction failed to attract strong demand.

Zuma’s second Cabinet reshuffle in seven months saw him change six ministers, including those for energy, home affairs, education and communications, and axe a vocal critic of his scandal-plagued presidency.

At 1122 GMT, the yield on the benchmark government bond was up 12.5 basis points at 8.765 percent, their highest level in one week.

The rand traded at 13.4425 per dollar, 1 percent weaker than its overnight close. The currency had started the session on the back foot, pressured by a stronger dollar.

“The cabinet reshuffle drove bonds higher and the rand also moved slightly higher. The market is taking it slightly negative,” said Rand Merchant Bank fixed income specialist Michelle Wohlberg.

“The auction also did not clear as well as expected so that also caused bonds to weaken.”

The Treasury sold a total of 2.55 billion rand ($190 million)worth of its 2035 <ZAR2035 =>, 2040 and 2044 instruments on Tuesday.

The bid-to-cover ratio on the 2035 bond fell to 2.4 from 4.2, while that for the 2040 bond was unchanged at 3.7. The cover ratio for the 2044 bond rose to 3.2 from 2.5.

On the bourse, the Top-40 index was down 0.34 percent while the broader all-share fell 0.42 percent.

($1 = 13.3999 rand)

(Reporting by Olivia Kumwenda-Mtambo; Editing by James Macharia)