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Johannesburg - South Africa's government bonds fell further on Wednesday while the rand steadied despite reports the government is considering a mining wealth fund that could be used to cap the currency's gains, and as markets awaited news of a new Greek bailout.
Bond yields rose for a third day, with the 2015 bond yield rising five basis points to 6.58 percent and that on the 2026 issue up 6.5 basis points to 8.32 percent, as profit-taking following strong gains last week was extended.
"The market went too far at the end of January and beginning of February so this is just a bit of correction," said Ian Scott, a bond dealer at Stanlib.
"We've had a good retracement and it will now be rand-dependent and also what comes out of Greece."
The rand was stuck in a familiar narrow range as dealers waited for news on a fresh 130 billion euro bailout needed to prevent a chaotic debt default by Greece next month.
Market reaction was muted to a report that the ruling African National Congress is considering using proceeds of a proposed mining tax to build a sovereign wealth fund to intervene in the currency market.
Bonds are likely to remain under pressure ahead of Finance Minister Pravin Gordhan's budget on Feb. 22 and further losses could be seen if the bill does not outline tough moves to curb fiscal slippage that has widened the budget deficit.
The rand was trading on 7.5510 to the dollar at 1545 GMT, not far from Tuesday's New York close of 7.5545.
"There was a strong rally in risk sentiment across the board and it's common that we see profit taking around these levels," said Duncan Howes, trader at Absa Capital, adding that news from Greece should give impetus for a break out of current ranges.
The rand hit a session high of 7.52 with one dealer saying if fails to break resistance at 7.50 soon, it will be vulnerable to moves towards the 7.60's.
South African President Jacob Zuma will give his State of the Nation address late on Thursday. He is expected to outline more programmes to quicken the pace of job creation to tackle the country's chronic unemployment.
