Short bonds firm - ignore rand

Johannesburg - South African bonds were firmer in midday trade on Friday with the short end especially well bid as local institutional buying absorbed foreign selling.

"The rand graph is looking insane but that is not affecting the bond market as local institutions are switching out of risky equities into safe haven bonds" a local trader said.

At 11:45 the benchmark R157 bond was trading at 6.350% from Thursday's close of 6.390%. The R207 was bid at 7.655% and offered at 7.625% from a previous close of 7.645% and the R186 was trading at 8.390% from its close of 8.375%.

The rand was bid at R8.6423 against the dollar from Thursday's close of R8.5006.

The inflation linked bond auction at 11:00 saw R275m worth of R210 bonds allotted at a clearing yield of 2.050% while R525m of R210 bonds were allotted at a clearing yield of 2.420%. Bids received totalled R475m and R980m respectively.

The seasonally adjusted Kagiso Purchasing Managers Index (PMI) which is a key leading indicator for activity in the manufacturing sector remained relatively stable at 53.6 index points in May from 53.7 in April pointing to contained activity in the sector.

The PMI is conducted on a monthly basis by the Bureau for Economic Research (BER) and the Chartered Institute of Purchasing and Supply.

An index level of below 50 represents contraction in the manufacturing sector while a reading of more than 50 signifies expansion.

Abdul Davids head of research at Kagiso Asset Management pointed out that despite the largely unchanged headline reading some significant numbers were seen within a number of the main PMI sub-components.

Notable was the 4.2 point rise in the employment index which was now at 53.

Foreigners were net sellers of R3.192bn of South African bonds including repo transactions on Thursday after net sales of R2.605bn of local bonds on Wednesday data released by the JSE shows.

Nominal cumulative volume was R90.335bn on Thursday from R54.118bn on Wednesday.

Foreigners were net sellers of R3.192bn of South African bonds excluding repo transactions on Thursday after net sales of R2.605bn of local bonds on Wednesday.

For the year to date foreigners have been net buyers of R29.191bn 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 R25.296bn of local bonds including repo transactions. In 2011 they bought R37.501bn worth of local bonds.