Johannesburg - Yields on South African government bonds dropped to seven-week lows on Wednesday, pushed down by better-than-expected consumer inflation data and an interim budget from Finance Minister Nhlanhla Nene that went down well with investors.
READ: Economists salute Nene
Statistics South Africa said annual inflation slowed to 5.9% in September, below market expectations and from 6.4% previously, partly because of lower fuel prices.
READ: Inflation slows to under 6%
The decline meant headline inflation returned to within the central bank's 3% tp 6% target for the first time since February, adding to views it will not have to raise interest rates next month, giving the economy room to recover from strikes this year.
Analysts said a 75 basis-point increase in rates this year looks to have been enough to stem inflationary pressures, with inflation peaking earlier than expected.
Government bonds extended gains to September 4 levels after Nene announced a smaller-than-expected budget deficit forecast for this year, along with projected faster fiscal consolidation and a budget-neutral support package for power utility Eskom.
"The emphasis on spending containment is particularly important," said Mamokete Lijane, a fixed income analyst at Sasfin Bank.
"The R20bn for Eskom is lower than people would have expected and the view that it's going to be funded via sale of state assets means it's going to be budget neutral."
Yields dropped 12.5 basis points to 7.885% on the benchmark 2026 issue and 16 basis points at 6.275% on the 2015 note.
The rand rallied to test levels below the 11 mark, hitting R10.9950 against the dollar.
The next major resistance for the currency comes at the R10.89, a level last tested in mid-September.