Bonds unchanged, ignore rand

Johannesburg - Despite a strong rand, bonds remained subdued in listless trade on Thursday with little in the way of fresh news to provide direction.

There was no palpable reaction from the market to the news that Moody's Investors Service has assigned an A3 rating to the new $2bn, 5.5% global bond issue from the Republic of South Africa as the rating didn't deviate from expectations.

By 15:20 the short-term government R154 bond was bid at 7.060% and offered at 7.040% after closing at 7.050% on Wednesday and the medium-term R157 was at 8.165% from 8.170% at its previous close. The long-term R186 was bid at 8.965% and offered at 8.945% from 8.945% previously.

The rand was bid at R7.4390 to the dollar from R7.4840 at its previous close.

"There is just no real conviction by clients to be buying at these levels. So the market is very light at the moment," a trader said.

"The rand has strengthened but we haven't really seen any follow-through from bonds," he added.

In its rating review of South Africa's $2bn bond issue on Thursday, Moody's said that the government will continue to have relatively low external debt vulnerability, even with the stepped-up issuance, since it is starting from a low base. As a proportion of its total debt, foreign currency debt will actually decline because of increased borrowing requirements domestically. At a national level, external vulnerability is also quite low compared to the country's A-rated peers, in spite of ongoing current account deficits.

It added that the Reserve Bank of South Africa has been accumulating foreign exchange in the past seven years when capital account surpluses regularly exceeded the current account deficits, and its net reserves position is in surplus by nearly $39bn.

Foreigners were net buyers of R2.965bn of bonds including repo transactions on Wednesday, after net purchases of R1.154bn of local bonds on Tuesday, Bond Exchange of South Africa statistics show.

Nominal cumulative volume was R41.102bn on Tuesday from R119.845bn on Tuesday.

Foreigners were net buyers of R3.021bn of bonds excluding repo transactions on Wednesday, after net purchases of R1.155bn of local bonds on Tuesday.

In the year to date foreigners have been net buyers of R7.936bn worth of local bonds, excluding repo transactions.

So far for total transactions, including repo transactions, foreigners have been net buyers of R10.976bn worth of bonds.

In 2009 foreigners were net buyers of R27.346bn 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