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Johannesburg - South African government bonds kept up a New Year rally on Monday, with yields hitting 19-month lows as the sliding oil price dramatically changes inflation expectations in the economy.
The yield on the benchmark government paper due in 2026 was down 6.5 basis points at 7.585% in late trade after earlier hitting 7.535%, its lowest since June 2013, according to Thomson Reuters' data.
The slide in oil prices showed no signs of let-up. US crude for February was down $1.13 at $47.23 per barrel and the February Brent contract was $1.31 lower at $48.80 a barrel. Both hit their lowest since April 2009.
"Inflation in the next few months will be doing a lot better than the South African Reserve Bank expected. And if oil keeps going down, it is entirely possible that the bond rally will continue," said Christie Viljoen, senior economist at NKC Independent Economists.
Oil's price is a key driver of South African inflation, which slowed to 5.8% in November from 5.9% in October. If this trend continues, the Reserve Bank will be able to keep its benchmark repo rate unchanged at 5.75%.
In November it left rates unchanged but said they would have to go up eventually.
But since that meeting on November 20, the oil price has shed almost 60%.
The one factor mitigating the impact of crude's fall in South Africa is the exchange rate of the rand, which was little changed at 15:15 GMT, fetching R11.5060 to the dollar, just a tad weaker than its close in New York.
