Rand, bonds steady in pre-budget trade

Johannesburg - The rand was steady and government bonds edged up slightly on Tuesday, with market players reluctant to take significant positions a day ahead of Finance Minister Pravin Gordhan’s budget presentation.

Economists polled by Reuters expect Gordhan on Wednesday to target a deficit of 5.4% of gross domestic product for the 2012/13 fiscal year from an estimated 5.3% in 2011/12, as the government ramps up spending on infrastructure and social services.

But government bonds have held up well despite the likelihood of increased issuance, partly supported by foreigners attracted by South African yields that are much higher than the near-zero rates in the United States and Europe.

The yield on the benchmark three-year bond was one basis point lower at 6.59% in early Tuesday trade, while that on the 14-year issue dipped 1.5 basis points to 8.215%.

The Treasury was due to sell a total of R2.1bn worth of the 2018, 2021 and 2041 bonds at a weekly auction closing at 09:00 GMT.

“This year, non-residents have been particularly fond of R208 scrip, with R7.4bn worth of net purchases, which has contributed to the proportionately greater compression of yields at the belly of the yield curve,” Absa Capital said in a note.

“We doubt this week will be any different in an environment where risk is being added to portfolios and South African scrip is still offering a relatively attractive pickup.”

As of 06:39 GMT, the rand traded 0.16% firmer at R7.66 to the dollar after ending Monday’s session at R7.6725.

Traders took cues from a stronger euro after finance ministers in that region clinched a second bailout deal for Greece.

“The bias remains in favour of rand bulls this morning and if they can breach R7.66 to the downside (firmer), then a move back down to R7.60 remains possible,” Absa Capital said.