Bonds eye rates decision

Johannesburg - South African bond yields were mixed in late trade on Monday, with hopes for a rate cut bolstering the long end, but a bout of profit-taking holding back gains at the short end.

The long-term R186 was one basis point firmer on prospects of a rate cut, while the benchmark R157 was slightly softer on some profit-taking. 

The main focus this week will be the Reserve Bank's Monetary Policy Committee (MPC) meeting, which gets underway on Thursday with the rates decision on Thursday afternoon.

By 15:50 the benchmark R157 bond was bid at 7.270% from 7.265% at its close on Friday. The benchmark R207 was bid at 7.975% and offered at 7.940% from 7.950%, while the R186 was bid at 8.010% and offered at 8.005% from 8.020%.

The rand was bid at R7.1960 to the dollar from R7.1675 at its previous close.

A 50 basis point cut is expected for South Africa's repo rate at the meeting on Thursday, according to a survey of 14 leading economists by I-Net Bridge.

"This is on the back of much lower inflation - but I am concerned that inflation will slowly start to increase again while the speed at which inflation may rise later - say early next year may make the repo cut one of only six or eight months. I know that I would not want a rate cut but I think on the back of what the Governor has said we will now see that rate cut," Economists.co.za's Mike Schussler said.

"With a holiday in the US, markets have been absolutely quiet. The R157s are marginally weaker on the back of some profit taking," said a local trader. US markets are closed for the Labour Day holiday.

Earlier in the day another trader said bonds had started quietly but should head towards positive territory this week because players will be picking up stock ahead of the MPC meeting.

Foreigners were net buyers of R752.653m of South African bonds including repo transactions on Friday, after net purchases of R588.8m of local bonds on Thursday, Bond Exchange of South Africa
statistics show.

Nominal cumulative volume was R39.395bn on Friday from R45.040bn on Thursday.

Foreigners were net buyers of R769.782m of South African bonds excluding repo transactions on Friday, after net purchases of R599.065m of local bonds on Thursday.

In the year to date foreigners have been net buyers of R71.876bn worth of local bonds, excluding repo transactions.

So far for total transactions, including repo transactions, foreigners have been net buyers of R64.401bn worth of bonds.

In 2009 foreigners were net buyers of R27.755bn worth of local bonds, excluding repo transactions, while for total transactions, including repo transactions, foreigners were net sellers of R2.424bn worth of bonds.