Johannesburg - Government bond yields tracked lower on
Wednesday, pushed down by more offshore buying and domestic market expectations
of a moderation in inflation that may allow the central bank room to cut
interest rates this year.
The rand was slightly weaker at R8.1872/dollar at 06:30 GMT
compared to a R8.1685 close in New York, and dealers said it would trade in a
R8.16-R8.24 range ahead of a central bank interest rate decision on Thursday.
The yield on the benchmark 2026 bond dropped to 7.41%, its
lowest since January 2009, while the three-year and nine-year bonds were close
to Tuesday’s record lows at 5.68% and 6.765% respectively.
The yield differential between the two benchmarks - the
R186/R157 spread - narrowed to 170 basis points, levels last seen two months
ago, as offshore pension funds showed a preference for the higher-yielding back
end of the curve.
Adding to the rally in the long-maturity bonds is
government’s cancellation in the past two weeks of its weekly switch auctions,
where it exchanges paper maturing in two years for bonds at the longer end of
the curve.
The move has caused a relief rally at the longer end, which
was previously weighed by oversupply concerns.
The last switch sale on June 28 had a poor take-up and
Treasury has opted to stay out of the market since then.
Central Bank governor Gill Marcus leads a second day of
Monetary Policy Committee (MPC) deliberations on Wednesday. Most economists in
a Reuters poll are forecasting no change in the repo rate, coupled with a
dovish policy stance.
If inflation and retail sales data due at 08:00 GMT and
11:00 GMT respectively print softer than expected, it could add to expectations
for a rate cut later this year.
“There is a lot riding on today’s numbers, with the market
split 50/50 as to whether Gill Marcus will cut after the end of the MPC meeting
tomorrow,” said Standard Bank trader Warrick Butler.
“An inflation number below 5.5% will cause the market to
price it in a lot more than it is doing so far.”
Economists polled by Reuters expect annual inflation to ease
to 5.6% in June from 5.7% previously.
Retail sales are seen jumping to 4.8% in May from a meagre
1% previously.