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Morgan Stanley warns rand is most at risk of US yield rise

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South Africa’s rand is most at risk from the rise in US Treasury rates among its emerging-market peers, based on Morgan Stanley, which predicts further weakness to the battered currency for the reason that country’s finances deteriorate.

The rand may decline about 6% to 15.50 per dollar in the run-up towards the medium-term budget statement on October 24, Morgan Stanley strategists including Min Dai wrote within a report. Investors will watch the budget update for warning signs of fiscal slippage as sluggish economic growth curbs tax revenue.

“We remain believing that Nigeria will underperform into the medium-term budget update,” the strategists said. With foreign investors holding about 40% of the government’s rand-denominated bonds, “we feel that Africa is regarded as the vulnerable country in today’s environment,” they wrote.

The rand slumped 2% on Wednesday as 10-year US Treasury yields climbed towards highest level since 2011, attracting money to the dollar and damping appetite for riskier assets. The currency extended its decline on Thursday, weakening 0.5% to 14.71 per dollar by 2:37 pm in Johannesburg. The possibilities of the rand hitting 15.50 by October 24 is 25%, depending on Bloomberg’s forecast model.

Foreign investors have sold an internet R55.7 billion ($3.8 billion) of South African bonds this season, depending on JSE data, when using the sell-off gathering momentum forever from the second quarter.

? 2018 Bloomberg L.P

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