Johannesburg - Bonds maintained their cautious tone in quiet noon trade on Tuesday ahead of the Medium Term Budget Policy Statement (MTBPS) to be presented in Parliament later Tuesday afternoon.
By 11:50, the short-term government R154 bond was bid at 7.450% from a previous close of 7.410%. The medium-term R157 was at 8.725% from 8.700%, while the long-term R186 was bid at 9.340% from 9.305%.
The rand was bid at R7.5745 to the dollar from a previous close of R7.5820.
Bond traders said that the market's attention was focused primarily on the MTBPS with the release of key monthly economic data releases of secondary importance this week.
"The estimates for the medium-term framework will also be of particular interest to the market. Both the Sarb Governor and Finance Minister have alluded to a lengthy period of sub-trend economic growth.
"Under these conditions revenue growth is likely to be constrained and, as we believe that the current large deficit is cyclical rather than structural, tough choices will have to be made on the level of tax rates and expenditure growth over the next three years as the fiscal space provided to a small emerging market economy is limited," RMB said in its daily commentary on Monday.
The Medium Term Budget Policy Statement is the first to be presented by South Africa's Finance Minister Pravin Gordhan.
Gordhan, who this year took over from Trevor Manuel, is expected to announce a significant widening of the country's fiscal deficit.
A survey of leading economists by I-Net Bridge shows that South Africa's fiscal deficit has doubled to -7.5% of GDP in 2009/10 from an expected -3.8% in February.
The range of forecasts among the 11 economists surveyed was from -6.8% of GDP to -8.3% with the economist at the top of the range saying that a record outcome would be due to a sharp fall in revenue, particularly taxes on companies' profits as the impact of the global recession bites home.
The deficit already amounts to R97.9bn, in excess of that
budgeted for the whole fiscal year of R95.6bn - and it is likely to double to R202.4bn if -8.3% of GDP is struck.
Chief economist from Econometrix, Azar Jammine, expects a R53bn shortfall in tax revenue this fiscal year, and feels that more radical assessments of R70bn probably won't happen, as there will be some economic upturn. But the overall shortfall will be R219bn from projections of just R94bn in the budget, leaving the deficit at a telling -8.9% of GDP.
He says this means government will have to borrow R100bn more
than forecast in February.
"The cash-flow strain on the fiscus will limit economic growth," said Jammine.
Tuesday's weekly government bond auction was well bid. The Treasury received bids totalling R3.285bn for R1.4bn worth of R203 bonds and bids totalling R1.925bn for R600m worth of R207
bonds.
Foreigners were net buyers of R924.793m worth of South African
bonds including repo transactions on Monday after net purchases of R253.583m worth of local bonds on Friday, Bond Exchange of South Africa statistics show.
Nominal cumulative volume was R12.270bn on Monday from
R9.113bn on Friday.
Foreigners were net buyers of R921.898m worth of South
African bonds, excluding repo transactions, on Monday after net
purchases of R253.506m worth of local bonds on Friday.
On a year-to-date basis, foreigners have been net buyers of R15.99bn worth of local bonds, excluding repo transactions.
On a year to date basis for total transactions, including repo
transactions, foreigners have been net sellers of R14.090bn worth of bonds.
- I-Net Bridge