Johannesburg - Bonds extended the previous day’s gains on Wednesday as institutional investors took up more stock after the Treasury said it would not increase supply, despite a wider projected budget deficit.
The rand was steady in what traders expected to be a nervous session ahead of a European summit that will seek to resolve the regional debt crisis that has hit risk appetite globally.
The yield on the benchmark four-year bond gave up another two basis points to 6.64% after dropping 7 basis points on Tuesday, partly due to the Treasury saying it would it would switch maturing bonds to longer-dated paper rather than issue new debt to plug a wider budget deficit.
The yield on the bond due in 2026 dipped 2.5 basis points to 8.31%, after shedding 14.5 basis points on Tuesday.
"There had been fears that the level of issuance would have been much larger and in the order of an extra R800m to R1bn per month, or roughly R200m per week," Tradition Analytics said.
"This has not been the case and almost immediately longer dated bonds enjoyed some support to see the R186 - R157 spread narrow slightly off its recent closing highs of 175 basis points to 167 basis points this morning."
The rand traded at R7.9275 to the dollar at 06:55 GMT, little changed from Tuesday's R7.9275 close. Market watchers said it would continue to take its cue from the euro ahead of the EU summit.
"We'll probably be fairly range-bound and liquidity is obviously a concern once again. I think R7.85 on the downside and R8.00 on the top side for today should contain until the announcement and after that it depends on what they say," Standard Bank trader Warrick Butler said.
Lack of concrete measures to stop the euro debt crisis from spreading could push the rand back to recent lows around R8.25/dollar.
"There could be an element of disappointment tonight which hasn’t really been built into the market yet. We might actually push back to that R8.25 level again," Butler said.