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Bonds edge up as buyers see value

Jan 25 2013 10:13 Reuters

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Johannesburg - South African government bonds edged higher on Friday as foreign investors came in to pick up local assets that now look relatively cheap after a recent heavy sell-off.

However, the rand remained within reach of Wednesday's four year lows and could easily resume its downward spiral as investors remain nervous about the dim outlook for Africa's biggest economy.

The yield on the bond due in 2026, the market benchmark, briefly scaled a three-week high of 7.385% before retreating to 7.35% by 08:45, down 3.5 basis points on the day.

That on the shorter-dated 2015 paper eased 1.5 basis points to 5.395%.

"You're always going to find that up to 7.36%, towards 7.40% on the 186's you get some buyers coming in," said Kgosi Tshite, a bond trader at Investec.

"The rand's depreciation has given foreign buyers a chance to get in again if you missed the move (weaker). 

"There's still a lot of buyers in this market and over the next two to three weeks we could rally quite a bit" he said.

The rand was still on shaky ground against the dollar, trading at R9.0555/$ compared with a New York close of R9.0485 and within striking distance of Wednesday's four year low of R9.0860.

Central Bank Governor Gill Marcus left interest rates unchanged on Thursday despite lacklustre economic growth, citing inflation risks emanating partly from the weaker currency.

The Reserve Bank was concerned about the rand's current level and its volatile trade, Marcus said.

Investors have dumped local assets amid rising concerns over the labour unrest and violent protest that have beset South Africa in the last five months.

The rand has already shed 7% of its value against the dollar in the first month of the year, the weakest performer in a basket of 20 emerging market currencies tracked by Reuters.

"The question everyone wants answered is whether the rand (sell-off) is overdone now or not," said Standard Bank trader Warrick Butler. "Above R9.12 we should see R9.25-9.35 pretty quickly and this still remains the technical trade of choice."

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rand  |  currencies  |  markets bonds
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