Bonds weaken marginally as focus turns to US inflation

South African bonds were slightly softer shortly before midday on Wednesday morning, tracking a weaker rand ahead of the release of US consumer inflation data on Thursday.

Weak inflation data could put the dollar under pressure and benefit US Treasuries, analysts said, as the US Federal Reserve considers increasing interest-rates again this year.

The dollar has recovered this week somewhat, as tension in North Korea eased and the economic effect of tropical storm Irma proved less serious than initially expected.

Local politics also weighed on bonds, after a court ruling that the 2015 KwaZulu-Natal provincial elections were unlawful. Bonds, however, hardly reacted to this, more focused on economic data this week, said Rand Merchant Bank analyst Michelle Wohlberg.

Nonresidents picked up an impressive R4bn worth of bonds during Tuesday’s South African government bond auction, and were influential participants in the weekly auction, particularly for the longer dated R2044 and R2030, said Sasfin Wealth Securities bond analysts.

Locals appeared to be more bearish and this may have been triggered by the expectation that revenues would underperform, and state-owned enterprises would require more assistance in this fiscal year, the analysts said.

At 11.30am the R186 was bid at 8.45% from Tuesday’s 8.445% and the R207 was at 7.13% from 7.125%.

The rand was at R13.0967 to the dollar from 13.0091.

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