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Johannesburg - Yields on South African government bonds were
lower early on Wednesday, with prices propped up by news that billions of
dollars could come into the market from abroad through the inclusion of local
bonds in a world bond index.
The rand was trading close to two week highs but had pared
most of its previous gains as investors, worrying about a Spanish auction on
Thursday, were cautious on risk.
Citigroup announced 11 government bonds would likely be part
of its World Government Bond Index (WGBI) on October 1, which could potentially
bring $5bn - $9bn worth of inflows into South Africa.
Daily foreign buying of local bonds recorded its second
biggest trading volume on the news and the rand rapidly pierced through
technical resistance levels, closing at R7.8120 in New York.
By 06:35 GMT on Wednesday the currency was trading around
those levels, with a firmer bias.
The rand should continue to gain in the short term as strong
inflows have usually resulted in a strong currency.
However if global factors such as eurozone jitters take over
investor sentiment, the inflows should cushion the rand against its usual
volatility.
“Given the tenuous situation in the eurozone and the threat
of another crisis, there is still likely to be some reluctance to establish
significant short dollar positions even with the news above,” research house
Tradition Analytics said in a note.
Yields on government benchmark debt dropped 4.5 basis points
to 6.465% on the 2015 note and 4 basis points to 8.155% on the 2026 issue.
Economists’ expectations are for improved retail sales and
inflation data later in the day, which would support rand bulls.
March inflation is due at 08:00 GMT and is seen easing to 6%
from 6.1% the same month a year ago. Retail sales for February, due at 11:00
GMT, are expected to have climbed to 4.8% from 3.9% in January.
Treasury will announce issuance plans for an auction next week. Its choice of bonds to sell will be keenly watched as the auction is expected to receive strong demand as investors try to pile into local debt before the World Government Bond Index inclusion.
