JOHANNESBURG (Reuters) - South Africa's rand fell more than 1.3 percent against the dollar on Wednesday and was the worst performer in a basket of 20 emerging market currencies, partly hit by S&P downgrading the country's outlook to negative from stable.
Government bonds extended the previous day's losses, pushing yields to week-long highs as investors adjust their long positions particularly at the longer end of the curve after a poorly subscribed weekly auction on Wednesday.
The rand hit a two-day low of 7.7099/dollar and was at 7.7091 by 1552 GMT, down 1.33 percent from Tuesday's close at 7.6075.
It was trading at 7.6430 just before S&P released its statement earlier, voicing concerns over structural problems such as a persistently high unemployment rate and current account deficit.
"The dollar is much, much stronger across the board today so that was obviously going to weaken the rand," Bidvest Bank chief dealer Ion de Vleeschauwer said.
"And then to add a bit more fuel to the fire, S&P downgrades the outlook, and so it's all a combination of factors that's pushing the currency a lot weaker than we opened in the morning.
"Today is a risk-off day again and we'll probably see a bit more exponential rand weakness across the crosses as well," de Vleeschauwer added.
Government bonds also fell after the S&P news, with the yield on the three year bond initially rising to 6.85 percent from 6.81 percent prior. It came back to close at 6.82 percent, up three basis points from Tuesday.
The yield for the 14-year paper added five basis points to 8.48 percent.
"The auction yesterday wasn't great so some players were stuck with stock they didn't want especially on the long end," Renaissance Capital bond trader Alvin Chawasema said of the sell-off.
"Yesterday and today we have seen a gradual curve steepening ... The market now thinking there will be pressure on the back end of the curve."
The market is looking to Thursday's policy speech by Reserve Bank Governor for pointers of when monetary tightening is likely to resume to curb inflationary pressures.