Bonds weaken as traders await US economic data

South African bonds retained their weaker bias shortly before midday on Wednesday, amid cautious trade ahead of US jobs numbers on Friday.

Analysts expected trade to be range-bound ahead of the US nonfarm payrolls data for July, which are a key signal on wage growth, inflation expectations, and the state of the economy.

US data from payroll processor ADP on Wednesday showed that private employers added 178‚000 new jobs‚ falling short of economist expectations of 180‚000. However, the slight miss was not enough to derail the effects of increasing positive sentiment in the stock market‚ and a stabilising dollar‚ reported Dow Jones Newswires.

The rand has been on the back foot since Monday, after ratings agency Moody’s reiterated concerns that SA’s political and economic outlook was negative.

Moody’s is the only ratings agency not to have downgraded SA’s sovereign credit rating to junk status.

Should it downgrade SA, the rand is expected to sharply weaken, as the loss of participation in global bond indices would mean institutional investors would no longer automatically buy local bonds.

Bonds have continued to find support from investors recently, analysts said.

On Wednesday foreign investors were marginal sellers of bonds, ending 12 straight days of inflows, said Rand Merchant Bank analyst Gordon Kerr.

Overall, given the move lower in daily move rates, positive offshore flows, and local disinflationary environment, RMB maintained a constructive outlook on local bonds, said Kerr.

At 11.30am the R186 benchmark government bond was bid at 8.62% from Tuesday’s 8.6% and the R207 at 7.39% from 7.37%.

The rand was at R13.2791 from R13.2074.

© Business Day

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