Short-covering push bond gains

Johannesburg - Bonds remained on the front foot by noon on Tuesday as a well-bid auction and short covering kept investors interested.

By 11:44 the short-term government R153 bond was at 9.450% from its previous close of 9.540%. The medium-term R157 was at 8.860% from 8.970% at Monday's close, and the long-term R186 was bid at 8.570% from 8.660% before.

The rand was last at R9.9665 per dollar from a previous close of R10.0170 and off an intraday worst of R10.0677.

"There may be some short covering, but it is difficult to pinpoint exactly why we are stronger and are not following the rand," said a bond dealer.

"The market is quite active," he added.

He said that the long end of the market had become strong after the auction, with the gap between the medium and short yields jumping around to an extent - the yield gap between the two bonds was 57 and "looking bid", then came back to 54 and is back at 57 again.

"They might buy long-term R186s and sell R157s," opined the dealer.

"Overall we are a bit stronger, but we are keeping a close watch on the rand," he concluded.

The South African Treasury on Tuesday allotted R750m worth of R204 bonds at a clearing yield of 8.900%. It allocated R200m worth of R209 bonds at a clearing yield of 8.110%.

Another local bond trader said earlier that bonds were ignoring the weaker rand and had seen some short-covering after the Australian central bank cut interest rates by 75 basis points, leading some to believe that local interest rates might also come down.

The local central bank's Monetary Policy Review is released at 17:30 and will be monitored for any hints on inflation and what can be expected come December 11 on interest rates.

Foreigners were net sellers of R183.621m worth of bonds on Monday after net sales of R499.784m worth of local bonds on Friday, Bond Exchange of South Africa statistics show.

Nominal cumulative volume was R39.778m on Monday from R40.953bn on Friday.

- I-Net Bridge