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Johannesburg - The yield spread on South African benchmark 2026 and 2015 bonds narrowed to its lowest in a year on Thursday, as lower-than-expected inflation data gave support to longer-dated bonds.
Data on Wednesday showed CPI was unchanged at 5.9% year-on-year in March, undershooting market expectations for price growth to hit the upper end of the central bank's 3% to 6% target.
The yield on the 2026 dropped to a record low of 6.87%, giving up 5.5 basis points, while the 2015 yield dropped 1.5 basis points.
The yield differential between the two was at 160 basis points, a level last seen in March 2012.
"For the time being, it looks like the bidding tone is set to continue with the R186s moving into historically low territory as they target 6.85% on the downside," Thando Vokwana, a dealer at Rand Merchant Bank, said in a note to clients.
The rand was ignoring the bond rally, taking its cue from the euro's weakness to the dollar.
At 08:53, the rand was 0.3% weaker at R9.1985/$, from its close of R9.1680 in New York.
The rand lacks momentum and is likely to trade in a narrow range this session, looking offshore for direction for the remainder of the week, traders said.
"For now the rand remains between R9.12 and R9.25. We continue to be well supported at R9.12, with the rand remaining on a weaker bias," said Brigid Taylor of Johannesburg-based Nedbank.
"I think that any dips towards R9.12 are a buy and we will see a continuation of that range".
