South Africa's rand plunged to an all-time low on Monday, falling below 18.00 to a dollar after ratings firm Moody's cut the country's last investment grade credit rating to "junk", adding to mounting panic about the coronavirus outbreak.
At 0913 GMT the rand was 0.97% weaker at 17.8300 per dollar, pulling back from the all-time low of 18.0800 it crashed to in Asian trading.
Late on Friday Moody's downgraded the rating one notch to Ba1 from Baa3 and maintained a negative outlook. S&P Global and Fitch downgraded Africa's most industrialised economy to sub-investment grade in 2017.
Moody's downgrade will see South Africa kicked out of the benchmark World Government Bond Index (WGBI) of local-currency debt at the end of April, triggering up to $12 billion of forced selling, treasury and analysts estimate.
"There is still some uncertainty around how much forced-selling of domestic bonds will materialise as a result of expulsion from the WGBI," economists at ETM Analytics said, adding: "It is unlikely that all investors will head for the door at the same time."
One factor likely to shield bonds and the rand from a deep and prolonged selloff is the relatively high rate of return, or yield, which is 4% to 5% higher than return offered by similarly rated peers and significantly above the near zero rates offered by developed market bonds.
The central bank's decision to a launch a "quantitative easing" style bond-buying programme, alongside easier repo terms for commercial banks, was also set to support demand for government bonds and limit a sharp spike in the curve.
"For investors with a longer-term horizon, this presents an opportunity to lock in those higher yields. In the longer term, the bond market should perform well," Maarten Ackerman, chief economist and advisory partner at Citadel, said.
Bonds opened weaker, albeit in a more muted fashion than moves seen last week as country entered lockdown. The yield on the benchmark government bonds due in 2026 was up 12.5 basis points to 10.615%.
Central bank governor Lesetja Kganyago said in a teleconference late on Sunday the aim of the bond-buying exercise was to normalise conditions in the bond market, and not to press down borrowing costs or directly plug government's cash shortfall.
On the same call, Finance Minister Tito Mboweni said the government was ready to approach the International Monetary Fund for emergency cash, but only to fund health interventions rather than stem widening fiscal deficits.
South Africa's confirmed coronavirus cases increased by 93 to 1,280 on Sunday and the death toll doubled to two. The country is in its fourth day of a national lockdown.