/ 24 February 2014

SA bonds subdued ahead of Budget speech

The South African bond market was subdued on Monday morning
The South African bond market was subdued on Monday morning

South African bonds were subdued in early morning trade on Monday but bids and offers indicated a strengthening bias is possible for the day.

This is despite some negative views by market players‚ who view the recent bond and rand strength as temporary.

At 8.48am‚ the longer-dated benchmark R186‚ due in 2026‚ was bid at 8.635% and offered at 8.605% from Friday's close of 8.640%. The shorter-dated R157‚ redeemable in 2015‚ was bid at 7.305% and offered at 7.290% from its previous close of 7.320%‚ while the intermediate R207 bond‚ due in 2020‚ was bid at 8.370% and offered at 8.345% from its previous close of 8.380%.

At 9.48am the rand was at R10.9431 to the dollar from its close of R10.9351 on Friday.

Nedbank Capital said in its early morning commentary that emerging markets were at the receiving end of a widespread risk-off scenario that was currently being played out over the past few months. "This has resulted in a sell-off in emerging-market bonds‚ equities and currencies‚ and has resulted in rapid foreign capital outflows from these markets."

Nedbank Capital said emerging-market bonds remained under pressure as the US continued to taper its asset-purchase programme gradually‚ restricting the flood of easy money.

"The sell-off in emerging-market bonds globally has also been reflected by the weakening currencies."

Although players in the bond market were reluctant to trade on Friday ahead of significant local macro data due for release this week‚ as well as the budget on Wednesday‚ this could change this week. "We still believe the last few days have shown the market's pain in the flattening of the yield curve‚ triggering stop losses‚ and that it may be open to a correction‚" Nedbank Capital said. – I-Net Bridge