Bonds rally on PPI, foreign buying

Johannesburg - South African bonds rallied in morning trade on Thursday on the back of lower-than-expected producer inflation data for December, released at 11:30 local time, as well as foreign buying on the stronger rand.

At 12:25, the benchmark R157 bond was trading at 6.490%, from its previous close of 6.650%. The R207 was trading at 7.730% from a previous close of 7.840% and the R186 was trading at 8.220%, from its close of 8.360%.

The rand was bid at 7.8375 against the dollar from its previous close of 7.8736.

"We saw short-covering this morning as the rand rallied overnight after hitting 8.06 against the dollar yesterday. The better-than-expected producer inflation provided a further kick in the rally so that may prompt even more short-covering later today," a trader said.

SA's December producer inflation came in at 9.8% year-on-year (y/y) compared with a consensus forecast of 10.1% y/y, which was the same as the November rate. Forecasts among 11 leading economists surveyed ranged from 9.5% y/y to 10.9% y/y.

Foreigners were net sellers of R436.464m worth of South African bonds including repo transactions on Wednesday after net purchases of R1.7bn of local bonds on Tuesday, data released by the JSE show.

Nominal cumulative volume was R65.217bn on Wednesday from R182.155bn on Tuesday.

Foreigners were net sellers of R436.854m of South African bonds excluding repo transactions on Wednesday after net purchases of R1.695bn of local bonds on Tuesday.

For the year to date foreigners have been net buyers of R1.630bn of local bonds, excluding repo transactions. In 2011 they were net buyers of R47.359bn worth of local bonds, excluding repo transactions.

In the year to date foreigners have been net buyers of R824.536m of local bonds including repo transactions. In 2011 they bought R37.501bn of local bonds.