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Johannesburg - South Africa’s government bonds extended gains on Friday, with one benchmark issue hitting an all-time high after weaker-than-expected US jobs data fuelled fears of a significant global growth slowdown.
Yields fell sharply across the curve, with the 2015 bond yield hitting record lows at 6.32% before coming back to 6.345%. The 2026 yield fell 13.5 basis points on the day to 7.895%.
The rand softened after the data to R7.04/$ from R6.9950/$ prior to the data release.
The yield curve has flattened by between 40 and 50 basis points in the past month on increasing expectations that the repo rate might have to be reduced further, as the global and domestic economy appear much weaker than previous forecasts.
Data showed US employment growth ground to a halt in August, highlighting the fragility of the world’s largest economy and keeping alive recession fears.
Reserve Bank governor Gill Marcus’ comments last week that the bank would “act appropriately” in the even of a significant global slowdown bolstered expectations of a rate cut.
“The US 10-year treasury gained after nonfarm payrolls and we followed that,” said a local trader.
“Effectively, the FRA (forward rate agreements) market is pricing in a cut, and if we get weak manufacturing numbers next weak, the Reserve Bank could be justified in cutting rates.”
Local FRAs have eased, with the market pricing in a 50% chance of a repo rate cut from 5.5% to add to 650 basis points of reductions in the two years to the end of 2010.
The rate on the 1x4 contract, which represents cash borrowed in one month for a three-month period, fell to 5.39% - a record low for that particular contract - from 5.42 on Thursday.
Next week, the focus will be on whether July’s manufacturing data point to another weak gross domestic product growth number for the third quarter after a sharp slowdown to 1.3% in the second quarter.
The central bank’s next monetary policy decision is due on September 22.
Yields fell sharply across the curve, with the 2015 bond yield hitting record lows at 6.32% before coming back to 6.345%. The 2026 yield fell 13.5 basis points on the day to 7.895%.
The rand softened after the data to R7.04/$ from R6.9950/$ prior to the data release.
The yield curve has flattened by between 40 and 50 basis points in the past month on increasing expectations that the repo rate might have to be reduced further, as the global and domestic economy appear much weaker than previous forecasts.
Data showed US employment growth ground to a halt in August, highlighting the fragility of the world’s largest economy and keeping alive recession fears.
Reserve Bank governor Gill Marcus’ comments last week that the bank would “act appropriately” in the even of a significant global slowdown bolstered expectations of a rate cut.
“The US 10-year treasury gained after nonfarm payrolls and we followed that,” said a local trader.
“Effectively, the FRA (forward rate agreements) market is pricing in a cut, and if we get weak manufacturing numbers next weak, the Reserve Bank could be justified in cutting rates.”
Local FRAs have eased, with the market pricing in a 50% chance of a repo rate cut from 5.5% to add to 650 basis points of reductions in the two years to the end of 2010.
The rate on the 1x4 contract, which represents cash borrowed in one month for a three-month period, fell to 5.39% - a record low for that particular contract - from 5.42 on Thursday.
Next week, the focus will be on whether July’s manufacturing data point to another weak gross domestic product growth number for the third quarter after a sharp slowdown to 1.3% in the second quarter.
The central bank’s next monetary policy decision is due on September 22.
