Bonds edge lower

Johannesburg - South African bonds edged slightly lower after the opening of trade on Wednesday with local markets lacklustre after Tuesday's Medium Term Budget Policy Statement (MTBPS).

By 9:15, the short-term government R154 bond was bid at 7.350% from a previous close of 7.395%. The medium-term R157 was at 8.615% from 8.690%, while the long-term R186 was bid at 9.175% from 9.260%.

The rand was bid at R7.6674 to the dollar from a previous close of R7.6590.

A bond trader said that after the activity on the market on Tuesday afternoon after the release of the MTBPS, "there was not much movement at the moment".

The rand remained range bound and the trader said he did not expect the CPI data due out later on Wednesday to have much of an impact.

South African bonds firmed by between four and six basis points on Tuesday afternoon on the news that South Africa's fiscal deficit has not widened by as much as some in the market has expected.

A bond trader said on Tuesday that many in the market had been expecting the fiscal deficit to widen to 7.8%, but Finance Minister Pravin Gordhan disclosed during his maiden Medium Term Budget speech on Tuesday afternoon that the deficit is expected to have widened to -7.6% of GDP in the 2009/10 fiscal year.

"This was not quite as bad as we had expected, so bonds have firmed a bit on that," the trader said.

Looking ahead, a survey of 13 leading economists by I-Net Bridge shows that the new consumer inflation index - the measure used by the South African Reserve Bank (Sarb) for its inflation target - is expected to have receded slightly to 6.3% year-on-year (y/y) in September from the 6.4% increase in August.

Forecasts among the economists ranged from 5.9% to 6.4%.

"Consumer inflation may remain sticky in September," said one of the economists to the survey.

"In September, we're likely to see survey risk creep back into the numbers, as owners' equivalent rent, actual rent, domestic workers' wages, public transport fares, vehicle insurance and prices of sports tickets will provide for upside risks," he added.

Down the line, expected 45% per annum increases over three years by Eskom is weighing on sentiment and weakening inflation and GDP expectations.

Foreigners were net sellers of R188.540m worth of South African bonds including repo transactions on Monday after net purchases of R924.793m worth of local bonds on Monday, Bond Exchange of South Africa statistics show.

Nominal cumulative volume was R22.343bn on Tuesday from R12.270bn on Monday.

Foreigners were net sellers of R177.159m worth of South African bonds, excluding repo transactions, on Tuesday after net purchases of R921.898m worth of local bonds on Monday.

On a year-to-date basis, foreigners have been net buyers of R15.81bn worth of local bonds, excluding repo transactions.

On a year to date basis for total transactions, including repo transactions, foreigners have been net sellers of R14.279bn worth of bonds.

- I-Net Bridge