By Garth Theunissen Jan. 29 (Bloomberg) -- South African bonds gained, pushing intraday yields to their lowest this year, after a report showing a drop in borrowing intensified speculation the central bank will cut its benchmark rate to boost the economy. The yield on the 13.5 percent bond due September 2015 dropped 7 basis points to 8.39 percent by 11:23 a.m. in Johannesburg, the lowest intraday level since Jan. 1. This takes its decline over the past week to 18 basis points. The bond’s price rose 33 cents from yesterday to 122.53 rand, extending its weekly gain to 83 cents. Borrowing by households and businesses dropped an annual 0.8 percent in December, more than the 0.5 percent estimated in a Bloomberg survey, indicating consumer spending is struggling to recover after the country emerged from its first recession in 17 years. Reserve Bank Governor Gill Marcus said on Jan. 26 some policymakers argued in favor of cutting the repurchase rate, which was kept unchanged at 7 percent. “The market is positioning for the probability of another rate cut,” said Ian Scott, a bond and currency trader at Stanlib Asset Management in Johannesburg. “South Africa is one of the few places in the world where there’s a realistic chance that rates may be cut and that’s depressing local yields.” Consumer spending in Africa’s biggest economy, which accounts for about two-thirds of demand, has been slow to recover even after six interest rate cuts between December 2008 and August 2009. A recovery from last year’s recession “is expected to remain subdued,” helping inflation to return to the central bank’s 3 to 6 percent target range on a “sustained basis” by the end of the first quarter, Marcus said Jan. 26. The rand advanced 0.7 percent to 7.5713 per dollar, from a close of 7.6260 yesterday. The move extended the currency’s gain this past week to 0.8 percent, the first increase in three. To contact the reporter on this story: Garth Theunissen in Johannesburg gtheunissen@bloomberg.net

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