Rand stronger, bonds still supported

Johannesburg - South African government bonds and the rand firmed in early Friday trade, with the rand outperforming its emerging market peers as local factors supported the currency in an otherwise risk-averse trading environment.

A Citigroup announcement on Tuesday that South African debt may be included in its World Government Bonds Index (WBDI) drove yields to multi-year lows. It has continued to prop up prices and will probably provide a cushion for the coming weeks.

Yields were lower at R6.50 on the three-year benchmark and 8.16% on the 14-year issue.

The rand firmed 0.24% against the dollar to R7.8225 by 06:52 GMT.

Dealers say they have seen good flow since the WGBI announcement. Foreign weekly uptake at about R11bn this week is the largest since July 2010.

The R186/R157 yield curve has flattened as people buy into the longer-duration assets, with the short end already low.

"Since that announcement foreigners remain the drivers and buyers of our bonds. The stats over the last days show there is a definite positive shift towards South African bonds,” said Marten Banninga, a trader at WWC Securities in Johannesburg.

Investor jitters about Europe's debt may offset some of the inflows but South Africa still compares favourably amongst its peers.

"The world markets remain uncertain but I think the trend and the demand will definitely be there. Once we move to be part of that world index, it will only contribute to South Africa becoming more attractive,” Banninga added.

Evidence of the increased demand may be seen at an auction of inflation linked bonds at 09:00 GMT and Treasury bills at 10:00 GMT later in the session.