South African bonds were having a bumpy ride, reversing earlier strength by midday to trade up to 22.5 basis points weaker as the rand moved back above the 10 rand per dollar level.
Stocks, Bonds & Forex Trading source: www.thetimes.co.za
By Jacqueline Mackenzie, I-Net Bridge Feb 12, 2009

By 12:25 the short-term government R153 bond was bid at 6.820% from its previous close of 6.725%. The medium-term R157 was at 8.020% from a previous 7.820%, while the long-term R186 was at 8.480% from 8.330%.

The rand was last at 10.0230 to the dollar from a previous close of 9.7977.

A local market analyst said that bonds, which had firmed with the stronger rand earlier, had followed the currency weaker as it moved back above 10 per dollar.

Traders were also divided on the impact of the bond issuances announced in Finance Minister Trevor Manuel’s Budget yesterday.

One trader said the amount of issuances which he put at around 70 billion rand would not be too much for the bond market to absorb.

He said given the cover ratios we have seen recently, he did not think it will too much for bond market to absorb it’s an increase of perhaps 15% on average on what is being absorbed right now. "It’s not a train smash and the market has taken it in its stride," he added.

Head of fixed income at Investec Asset Management, Andre Roux, noted that longer ends of the bond market had been weakening prior to the Budget in anticipation of the expected supply that would come via borrowing in the face of lower government revenues and the resultant deficit. This view was borne out by the news that the budget deficit would widen to a whopping 3.8% of GDP next year.

But Roux said the markets were pleasantly surprised when they dug beneath the initial headline debt raising numbers.

"The 95 billion rand was a big figure on the screens, but then we saw that it would be only 60 billion rand they would be coming to the bond market for," he said.

He notes that the government had bought back some of the debt in the past.

But Roux added: "The market is worried about the risks of 10 billion rand in overseas markets."

However, another local trader attributed the weakness morning to supply concerns, as well as the weaker rand.

Foreigners were net sellers of 3.754 billion rand worth of South African bonds yesterday after net purchases of 5.630 billion rand worth of local bonds on Tuesday, Bond Exchange of South Africa statistics show.

Nominal cumulative volume was 65.143 billion rand yesterday from 130.138 billion rand on Tuesday.