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Johannesburg - South African government bonds
firmed on Wednesday, bringing yields down across the curve as the market trimmed
its rate increase expectations after softer-than-expected data.
Inflation came in lower than expected at 6.1% year-on-year
in December. Purchasing managers' index (PMI) data indicated the manufacturing sector was still sluggish,
while retail sales data suggested consumer spending was not growing as fast as
previously anticipated.
Yields were down nine basis points on both the 2015 and the 2026
benchmark bonds to 6.68%t and 8.435% respectively.
“The CPI (consumer price index) number and lower PMI and lower retail sales number have
all been good for bonds,” said Ian Scott, bond dealer at Stanlib.
“There’s no urgent need to hike rates soon, monetary policy is
going to remain sideways for longer,” he said.
Rates on FRA’s - forward rate agreements that gauge interest rate
expectations - also fell across the board.
The Reserve Bank’s monetary policy will announce its first rate
decision of 2012 on Thursday. It is expected to leave the repo rate unchanged at
5.5%, with analysts in a Reuters poll last week divided on when the bank
would start tightening policy.
If the economic situation deteriorates even further, some analyst
see a chance of a rate cut to add to the 650 basis points worth of reductions in
the two years to end-2010.
The expectations of lower rates for longer weighed on the rand.
The rand ended largely steady against the dollar, erasing all the
session’s gains that took it to 7.9877 - its strongest since early December.
It was last trading at 8.0440 to the dollar, not far from Tuesday’s
New York close of 8.04.
“Today’s worse-than-expected data is largely negative for the local
currency,” said Standard Bank in a note.
“Given the backdrop of weaker global economic growth, the currency
could edge weaker as market participants await concrete results regarding the
eurozone debt saga,” it said.
The rand has failed several times to break below 8.00/dollar, after
hitting a two-and-a-half year low of 8.61 in November.
