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Bonds very quiet, shrug off data

Johannesburg - Bonds remained extremely quiet at midday on Monday, shrugging off the release of current account data contained in the Reserve Bank's latest quarterly bulletin.

This is a four-day trading week for SA, with markets closed on Wednesday for the Human Rights Day holiday.

At noon, the benchmark R157 bond was bid at 6.850% and offered at 6.830% from its previous close of 6.825%. The R207 was bid at 7.930% and offered at 7.900% from a previous close of 7.900% and the R186 was bid at 8.435% and offered at 8.405% from its close of 8.400%.

The rand was bid at 7.5557 against the dollar from its previous close of 7.5440.

A local bond trader said it had been quiet and any movements were currency related at the moment. He added that he had a sense that players were regrouping after last week's activity.

"A few traders got whipped last week, so either they are licking their wounds or regrouping," he said.

Bonds showed scant reaction to the release of the Reserve Bank's quarterly economic bulletin earlier. SA's current account deficit eased to 3.6% of gross domestic product (GDP) in Q4 2011 from 4.1% in Q3, the South African Reserve Bank (Sarb) said on Monday.

Data in the bank's latest quarterly bulletin showed that for calendar 2011 the deficit was 3.3% of GDP compared with 2.8% in 2010, 4.0% in 2009 and 7.2% in 2008.

A survey of eight leading economists by I-Net Bridge pegged the current account deficit at -4.3% of GDP. The forecast range for the expected deficit varied from -3.4% to -5.0% of GDP.

The deficit on the current account of the balance of payments amounted to R21.4bn (R110.2bn at seasonally adjusted annualised rate) in the fourth quarter, compared with R34.9bn (R121.5bn) in the third quarter and it ended 2011 at R98.8bn compared with R75bn in calendar 2010.

SA's foreign trade surplus in goods narrowed to R16.4bn in 2011 from R27.2bn in 2010.

"The shortfall on the services, income and current transfer accounts with the rest of the world contracted noticeably in the fourth quarter of 2011, offsetting the deterioration in the trade balance," the Sarb said.

Another trader said it was the consumer price index (CPI) data - due on Thursday - that the bond market would be most sensitive to.

"It's the CPI that we are holding on for - I think we will be a bit more sensitive to that print after (Sarb governor) Gill Marcus' speech last week. But on the whole we thought that the speech was balanced and we have not changed our rates outlook. We are still only looking for a rate hike in mid-2013," he said.

In an address last week Marcus said monetary policy was currently facing the challenge of a rising trend in inflation and a slowing domestic economy.

It was important that inflation was kept under control, Marcus said, adding that monetary policy was best placed to do this.

"But in trying to stem high inflation, monetary policy may have negative short run effects on economic growth.

"Conversely, monetary stimulus will only impact on cyclical growth. Therefore there has to be sensitivity on the part of policy makers to the state of the business cycle," she said.

Standard Bank analysts said in a morning note that ordinarily the CPI data release would likely be the standout feature on the calendar but it is likely to be overshadowed by the other, less frequent, releases.

"Recent comments by governor Marcus suggest that the Sarb might be shifting its stance on inflation. For much of the past two years, the MPC (monetary policy committee) has reiterated the view that inflationary pressures in SA are of a cost-push nature, not demand-driven.

"However, last week Marcus hinted that the bank saw evidence of demand-side pressure on inflation. These comments could imply an imminent rate hike though our base case still sees rates on hold this year," they said.

Foreigners were net sellers of R2.036bn of South African bonds including repo transactions on Friday after net purchases of R1.014bn of local bonds on Thursday, data released by the JSE shows.

Nominal cumulative volume was R73.743bn on Friday from R71.739bn on Thursday.

Foreigners were net sellers of R2.037bn of South African bonds excluding repo transactions on Friday after net purchases of R1.013bn of local bonds on Thursday.

For the year to date foreigners have been net buyers of R17.546bn 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 R15.473bn of local bonds including repo transactions. In 2011 they bought R37.501bn of local bonds.
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