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Bonds firm ahead of CPI data

Johannesburg - South African bonds were firmer in early trade on Wednesday ahead of key consumer price index (CPI) data due this morning and the rates decision due on Thursday.

By 08:50, the benchmark R157 bond was trading at 7.790% from its previous close of 7.830%, while the R207 was trading at 8.670% from its previous close of 8.710%. The R186 was bid at 8.905 from its previous close of 8.930%.

The rand was bid at R6.9106 to the dollar from its previous close of R6.9029.

"We're all waiting for CPI. What has probably gone through the market at the moment is better buyers - R157s about three points firmer - but it's in small volumes. The majority of players believe that rates will remain unchanged at the Monetary Policy Committee (MPC) meeting, what is important is the rhetoric that come out of the meeting. We expect the inflation forecast to be increased, although we don't expect the increase to exceed the upper target band. And we don't expect any upward revisions in growth," said a local trader.

The consumer inflation index - the measure used by the SA Reserve Bank (SARB) for its inflation target - is expected to tick up to 3.7% year on year (y/y) in February from 3.7% y/y in January, according to a survey of leading economists by I-Net Bridge. Forecasts among the nine economists ranged from 3.4% to 3.9%.

Meanwhile, Standard Bank said in a morning report that SA's rates were mostly suspended around the middle of their respective ranges of the past month.

"It's clear that the market is waiting on the MPC for the next impetus; although surprisingly good balance of payments data for the fourth quarter of 2010 did help push rates lower yesterday," it said.

"CPI this morning - Standard Bank's base case is in line with the consensus outlook of 3.7% y/y in February. The risks are asymmetrically skewed to the upside: a print closer to 4.0% y/y would likely induce sharp upside in the short end. Otherwise, a relatively contained day is expected into the run-up to tomorrow's MPC announcement," Standard Bank added.

Foreigners were net buyers of R1.778bn of South African bonds including repo transactions on Tuesday after net sales of R886.320m of local bonds on Friday, Bond Exchange of South Africa statistics show.
Local markets were closed Monday for a public holiday.

Nominal cumulative volume was 185.104 billion rand on Tuesday from 63.560 billion rand on Friday.

Foreigners were net buyers of 1.734 billion rand of South African bonds excluding repo transactions on Tuesday after net sales of R645.666m of local bonds on Friday.

For the year to date, foreigners have been net sellers of R14.082bn worth of local bonds, excluding repo transactions. In 2010 foreigners bought net 57.064 billion rand worth of local bonds, excluding repo transactions.

For the year to date for total transactions, including repo transactions, foreigners have been net sellers of R16.448bn of local bonds. In 2010 they bought net R44.541bn worth of bonds.

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