SA bonds decline as data signals rate hold

South African bonds fell for a second day, driving yields to two-week highs, on speculation slowing growth is limiting the Reserve Bank’s room to combat rising prices. The rand gained against the dollar.

South Africa’s manufacturing gauge fell below the level that signifies expansion for the first time in six months, while vehicle sales contracted a second month, reports showed yesterday. The central bank left its benchmark repurchase rate at 5% since a surprise 50 basis-point cut in July 2012 even as inflation breached its target for a second month in August.

"Yesterday’s local data was disappointing and supports our view that the Reserve Bank will keep rates on hold as long as possible, despite the less favorable inflation backdrop," Carmen Nel, a Cape Town-based fixed-income analyst at Rand Merchant Bank, said in an email. Higher inflation erodes real returns on fixed-interest investments including bonds.

Yields on benchmark 10.5% bonds due December 2026 climbed six basis points, or 0.06 percentage point, to 8.08% at 3.40pm on the JSE, the highest level on a closing basis since September 18. The rand appreciated 0.5% to 10.0682 per dollar after declining 0.3% earlier.

The currency advanced before a report tomorrow that may show claims for unemployment benefits in the US rose last week as a partial government shutdown threatens a recovery in the world’s biggest economy. The Federal Reserve surprised the market on September 18 by maintaining its monthly bond purchases after saying since May it may taper stimulus if employment improves.

Jobs data
Initial jobless claims rose to 314 000 in the week to September 28 from 305 000 the previous week, according to the median estimate of 48 economists in a Bloomberg survey. The economy probably added 180  000 jobs in September, compared with 152 000 the previous month, a separate report may show October 4.

"The market is consolidating ahead of the US jobs data," Mohammed Nalla, head of strategic research at Nedbank Group. "We’re still fairly negative on the rand."

South African vehicle sales fell 1.5% from a year earlier to 54 281, the National Association of Automobile Manufacturers of South Africa said yesterday. Exports dropped 75% as labor strikes hit output. The seasonally adjusted purchasing managers' index fell to an eight-month low of 49.1 from 56.5 in August, Kagiso Tiso Holdings said. 

The median estimate of seven economists surveyed by Bloomberg was 54.

The central bank remains concerned about the effects of strikes on the economy, Governor Gill Marcus said yesterday in a speech to diplomats in Pretoria. – Bloomberg

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