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Bonds perk up a bit on offshore demand

Johannesburg - Having been flat for the better part of the session, South African bonds perked up a bit in afternoon trade on Tuesday on the back of some offshore demand and what dealers described as a reasonably well-subscribed weekly government auction.

A strong rand also helped to bolster the market.

By 16:00, the benchmark R157 bond was trading at 7.700% from its previous close of 7.730%, while the R207 was bid at 8.480% and offered at 8.450% from 8.490%. The R186 was bid at 8.735% and offered at 8.705% from its previous close of 8.745%.

The rand was bid at 6.8084 to the dollar from its previous close of 6.8369.

"We had a reasonably well-subscribed auction this morning and we have also seen a bit of offshore demand. The rand is also quite strong at the moment. So bonds have firmed slightly," a local bond trader said.

The National Treasury received bids totalling R3.435bn for R1.3bn worth of R208 bonds and bids totalling R1.48bn for R800m worth of R214s.

Standard Bank analysts noted in a morning report that the decline in the US credit ratings outlook by S&P rippled through interest rates markets.

"While US treasuries were modestly firmer yesterday, global risk appetite took a knock in response to the agency's statement. This sour mood has permeated Asian trading, and the clear risk is that local rates also come under pressure today," they said.

Furthermore, price action in peripheral European Monetary Union debt also suggests caution should be applied in emerging markets today, as fears of an imminent restructuring announcement have reached fever pitch, they added.

The main local data this week is consumer inflation data, due on Wednesday. The consumer inflation index - the measure used by the SA Reserve Bank (Sarb) for its inflation target - is expected to tick up slightly to 3.9% year on year (y/y) in March from 3.7% y/y in February, according to a survey of leading economists by I-Net Bridge.

Forecasts among the nine economists ranged from 3.7% to 4.0%.

Foreigners were net sellers of R1.008bn of South African bonds including repo transactions on Friday, after net purchases of R2.059bn of local bonds on Friday, Bond Exchange of South Africa statistics show.

Nominal cumulative volume was R53.434bn on Monday from R36.505bn on Friday.

Foreigners were net sellers of R244.921m of South African bonds excluding repo transactions on Monday after net purchases of R2.080bn of local bonds on Friday.

For the year to date, foreigners have been net buyers of R3.312bn worth of local bonds, excluding repo transactions. In 2010 foreigners bought net R57.064bn worth of local bonds, excluding repo transactions.

For the year to date for total transactions, including repo transactions, foreigners have been net sellers of R2.628bn.

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