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Johannesburg - South African government bonds firmed on
Friday as offshore demand, soft inflation and weak growth prospects combined to
rally yields this week, but a weak rand that looks set for further falls is
applying pressure.
Dealers said the next couple of weeks look favourable for
the paper ahead of the next central bank policy-setting meeting as well as the
inclusion of South African bonds into a prominent world government bond index
on October 1.
Yields on the three-year bond fell three basis points to
5.485% on Friday while the longer 14-year bond dropped 4.5 basis points to
7.47%.
"Numerous positive factors, i.e. a strong bond auction
on Tuesday, lower than expected CPI on Wednesday, lower global bond yields, IMF
comments warning about growth in South Africa, have led bond yields lower this
week," said Steve Arnold, a bond trader at Investec.
Yields hit three-week lows on Thursday but the lower rand
weighed on bonds in Friday's early session to come off those best levels. But
the outlook was positive.
"Going into the MPC in September, a potential further
fall in CPI next month, the inclusion in the world bond index from October 1st
with sizeable coupon flows in September; bond yields are set to remain bid for
the foreseeable future," Arnold said.
The rand was down 0.25% early in the session, off its
previous close at R8.3430 by 06:30 GMT.
Charts showed the rand would likely have a tough time in
coming sessions as it traded above its short, medium and long-term moving
averages.
Analysts were calling for an eventual re-test of R8.50
support in the third quarter, a level previously hit in late July.
In the short term, euro/rand could hit R10.50 and
potentially R10.60, Absa's technical strategist Judy Padayachee said.
The pair was at R10.45 in early in the Friday session.
"Now we have to wait for follow through in dollar/rand, which is edging towards the peak from last week at R8.36. We favour a push to R8.40 next week," Padayachee said.
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