Johannesburg - Yields on South African government
bonds rose to their highest in more than a week on Tuesday after a weekly
auction that saw investors dump the longer end of the curve ahead of a budget
speech next week in which more issuance is expected to be announced.
The rand extended losses against the dollar to trade 1.3%
weaker on the day and was the second-worst performer of 20 global emerging
market currencies tracked by Reuters.
Bonds were sold off in the morning as primary dealers made space
ahead of the auction. The weak auction results saw continued selling, especially
on the longer end of the curve, as investors shy away from long duration bonds
before a midterm budget speech next week.
The Finance Ministry will announce any changes to debt issuance for
the 2011/12 financial year in its midterm budget statement on October 25. Traders
are bracing for increased supply at the longer end, such as the 2031s and 2041s, which the government tends to use as funding stock.
“Given what has happened in the last couple of weeks where they’ve
increased volumes (of inflation-linked bonds), I do think you can expect a bit
of increase in volume,” said Marten Banninga, a bond trader at WWC Securities.
The yield on the 2015 note fell six basis points to 6.83%
while the 2026 issue added seven basis points to 8.545%. Yields are at
The weekly government sale saw dealers pick up shorter-dated 2017
paper but they showed little appetite for the 2041 bond, the longest maturity
“Its to do with the uncertainty surrounding markets in general.
After the auction result, with the 214 printing about 7 points higher than
market, the longer end of the curve just continued to sell off. You saw about 8
basis points in the 157 but in the longer end you saw about 20 bps (sell off),”
Economists polled by Reuters expect consumer inflation in
September, due to be reported at 08:00 GMT on Wednesday, to have quickened,
adding pressure on the bond market.
The rand was down for the second day against the dollar and was
trading at R8.0350 dollars at 15:00 GMT, off Monday’s close of R7.9904. Dealers say
if the rand convincingly breaks through R8.10 support, a level it has previously
failed at, it is likely to weaken further against the dollar.
Liquidity continues to weigh on the market as investors stay away
until solutions are found to the eurozone debt crisis.