Bonds fall ahead of weekly auction

Johannesburg - South African sovereign bonds weakened against the dollar on Tuesday before a weekly auction at which the government is taking the unusual step of issuing three bonds, mostly from the long end of the curve.

The weakness comes despite Treasury data showing a narrower fiscal deficit in the first nine months of the 2011/12 financial year compared to the previous year.

Investors expect South Africa's budget to be under pressure over the next few years as taxes are expected to take up to four years to recover to their pre-financial crisis levels.

The budget on February 22 will be particularly closely watched for how Finance Minister Pravin Gordhan plans to rein in spending and maintain the country’s credit rating.

At its weekly auction on Tuesday, the government hopes to spread the risk of a failed auction by issuing three bonds, said Anisha Arora, emerging market analyst at 4CAST.

It will offer a total of R2.1bn, split between the 2018, 2020, and 2031 bonds. The results will be out after 09:00 GMT.

Benchmark bonds were weaker, with the yield on the 2015 issue up three basis points to 6.5% and that on the 2026 note up four basis points to 8.225%.

The rand was largely steady at R7.8350 against the dollar, not far from Monday's New York close of R7.8320.

“The rand remains on a stronger bias today after a better Asian session that saw the dollar retreat,” said Brigid Taylor, head of institutional sales at Nedbank.

“The EU summit and Greek debt swap talks continue to pose event risk, but the market seems comfortable that the agreements reached will keep up the status quo in Europe. I am looking for R7.70/R7.90 for the next few days,” she added.

The JSE's Top 40 - (Tradeable) [JSE:J200] index of bluechips opened up 0.35%.