Bonds steady after good auction

Johannesburg - Bonds were off their earlier weaker levels by mid-morning on Tuesday after a strong weekly government bond auction.

Bonds had been up to 5 basis points softer in early trade amid a softer rand as some concerns crept into global markets after the euphoria on Monday stemming from the announcement of the massive euro debt rescue package.

By 11:30 the short-term government R154 bond was bid at 6.900% and offered at 6.880% after closing at 6.860% on Monday and the medium-term R157 was at 8.140% from 8.105% at its previous close. The long-term R186 was at 9.000% from 8.975% previously.

The rand was bid at R7.5402 to the dollar from R7.4750 at its previous close.  

A local bond trader said that global markets were nervous again, this time about the sheer size of the rescue package. Questions are now being raised about the long-term sustainability of the deal. 

However a strong auction helped lift local bond yields off their worst levels, with the R186s being especially strong.

The South African Treasury on Tuesday allotted R1.2bn worth of R208 bonds at a clearing yield of 8.940% and R900m worth of R186 bonds at a clearing yield of 8.980%.

"The auction was good, especially the R186s and we have seen some buying continuing after the auction," the trader said.

Attention now turns to the Monetary Policy Committee meeting decision on interest rates on Thursday.

South Africa's repo rate is expected to remain unchanged at 6.5% when the decision is made on Thursday, according to a survey of 11 leading economists by I-Net Bridge.

One of the economists said he had expected another cut to 6.0%, but that changed his view after the rand became highly volatile in the wake of European credit contagion.

Governor Gill Marcus reported last month that the scope for further easing is limited, and the repurchase rate is likely to remain stable for some time. But she also said her comments should not be seen as an unconditional commitment.

"While events in the eurozone are therefore likely to have tipped the balance in favour of maintaining a steady hold on the policy rate, there may be a strong lobby in the MPC which feels rates are too high," said the surveyed economist.

The decision will be made shortly after 15:00 on Thursday.   

Foreigners were net buyers of R871.507m of bonds including repo transactions on Monday after net sales of R2.411bn of local bonds on Friday, Bond Exchange of South Africa statistics show.

Nominal cumulative volume was R26.146bn on Monday from R33.035bn on Friday.

Foreigners were net buyers of R874.144m of bonds excluding repo transactions on Monday after net sales of R2.411bn of local bonds on Friday.

In the year to date foreigners have been net buyers of R28.977bn worth of local bonds, excluding repo transactions.  

So far for total transactions, including repo transactions, foreigners have been net buyers of R25.620bn worth of bonds.

In 2009 foreigners were net buyers of R27.755bn worth of local bonds, excluding repo transactions, while for total transactions, including repo transactions, foreigners were net sellers of R2.424bn worth of bonds.

  - I-Net Bridge