Johannesburg - South African bonds were between three and four basis points weaker in early trade on Friday, in line with a soft rand and a cautious global investment backdrop.

By 12:06 the benchmark R157 bond was at 7.635% after closing at 7.590% on Thursday and the 10-year R207 was at 8.320% from 8.290% previously. The long-term R186 was at 8.545% from 8.530% at its previous close.

The rand was bid at R7.3407 to the dollar from R7.3196 at its previous close.

A local bond analyst said SA bonds traded weaker this morning as the rand traded off recent best levels against major currencies, while caution among global investors ahead of the US GDP data was limiting foreign demand for local paper.

Another local trader said the market, after initially not reacting much to the much weaker than expected producer inflation data at the time it was released, have now digested the numbers and had weakened.

The consumer inflation data released Wednesday - which came in at 4.2% y/y from an expected 4.5% y/y - had been welcomed and even sparked hopes in some quarters of a potential rate cut in September.

"But the PPI number really put the spanner in the inflation works," said the bond trader.

"But then the market has been very strong and has had a strong run to recent lows. So maybe it was looking a bit oversold," he said.

South Africa's PPI registered growth of 9.4% year-on-year (y/y) in June compared with 6.8% y/y in May, Statistics South Africa (Stats SA) data on Thursday showed. The PPI increased 4.0% on a monthly basis after May's monthly increase of 0.2%.

The PPI was expected to have reached 7.5% y/y, a survey by I-Net Bridge found. Forecasts among the 10 leading economists surveyed ranged from 6.5% y/y to 8.6% y/y.

The trader added that trade data will be watched on the local front and US Q2 2101 GDP data on the global front. The trade data is often erratic, but does sometimes prompt a move in the rand, which could in turn filter through to bonds.

South Africa's foreign trade balance with its non-Southern African Customs Union trading partners is expected to have reached a R1.1bn deficit in June from the 0.3 billion rand deficit of May, according to a survey by I-Net Bridge.

A record R17.4bn deficit was set in January last year, but a few surprise surpluses have been registered since then as export performance began to improve, while the recession crimped back on imports.

Forecasts among the leading economists surveyed varied from a R3.0bn deficit to a R0.6bn surplus.

"In June, exports may be capped as the global economic recovery is seemingly losing momentum," said one of the economists in the survey.

The Customs and Excise Department is set to release the latest foreign trade data at 14:00.

Foreigners were net sellers of R4.240bn of South African bonds including repo transactions on Thursday after net sales of R451.208m of local bonds on Wednesday, Bond Exchange of South Africa statistics show.

Nominal cumulative volume was R82.860bn on Thursday from R81.591bn on Wednesday.

Foreigners were net buyers of R1.492bn South African bonds excluding repo transactions on Thursday after  net sales of R585.222m of local bonds on Wednesday.

In the year to date foreigners have been net buyers of R55.583bn worth of local bonds, excluding repo transactions.
 
So far for total transactions, including repo transactions, foreigners have been net buyers of R48.340bn 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