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Bonds edge firmer in illiquid market

Jan 08 2013 09:14 Reuters

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Johannesburg - South African government bonds rallied in early Tuesday trade although demand could taper off with the potential injection of R2.1bn of new paper when the Treasury holds its first auction of the year. 

The rand was largely flat against the dollar, barely moving on data showing both gross and net foreign exchange reserves fell in December compared with the previous month. 

At 06:44 GMT the yield for the benchmark bond due in 2026 was down 5 basis points at 7.225% and that for the two year paper shaved off 2.5 basis points to 5.325%. 

"We're opening up stronger again in keeping with the last two days. It's been a good week for bonds so far, with offshore buyers and the lack of liquidity causing the move," said Mark Southworth, a bond trader at Citi. 

Data from the JSE exchange shows foreign demand for local debt has been strong in the first week of 2013, with offshore accounts buying a net R1.5bn as of January 4, compared to net sales of about R90m over the same period last year. 

"This morning we do have the bond auction, so it will be interesting to see whether the market still has appetite for bonds at these relatively expensive levels," Southworth said. 

The rand was at R8.5720 against the dollar, just 0.08% softer than the previous day's close at R8.5654. 

The currency barely moved after a Reserve Bank report showed net gold and foreign exchange reserves fell to $47.948bn at the end of December from $48.431bn in November. 

Gross reserves were also lower at $50.735bn from $50.813bn the month before.  

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