Bonds steady; all eyes on CPI
August 26, 2009
By Evan Pickworth
South African bonds are steady in early trade on Wednesday as investors await the outcome of a key inflation reading later on. There are expectations of another improvement in inflation and hence the prospect for another cut in interest rates, which is generally good for bond prices.
By 8.45am the short-term government R154 bond was untraded from a previous close of 7.430%. The medium-term R157 was at 8.145% from 8.140%, while the long-term R186 was bid at 8.740% from 8.705% before.
The rand was bid at R7.8454/$ from a previous close of R7.8100/$.
"Today's release of CPI numbers for July, we believe, will be a critical element in helping us to understand what the SARB's next policy rate move is likely to be," said a market analyst.
A local bond dealer added that some "punters" had made plays yesterday around the possibility of a positive CPI reading.
The new consumer inflation index - the measure used by the South African Reserve Bank for its inflation target - is expected to have receded to 6.6% year-on-year (y/y) in July from the 6.9% increase in June, according to a survey of leading economists by I-Net Bridge.
Forecasts among the economists surveyed ranged from 6.3% to 6.8%.
Foreigners were net buyers of R2.042 billion worth of South African bonds including repo transactions on Tuesday after net purchases of R295.282 million worth of local bonds on Monday, Bond Exchange of South Africa statistics show.
Nominal cumulative volume was R15.882 billion on Tuesday from R30.113 billion on Monday.
Foreigners were net buyers of R1.011 billion worth of South African bonds, excluding repo transactions, on Tuesday after net purchases of R292.112 million worth of local bonds on Monday.
On a year-to-date basis, foreigners have been net buyers of R16.749 billion 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 R2.619 billion.
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