BONDS weakened by eight basis points today in line with a retreating rand.
In late trade the short-term government R154 bond was bid at 7.350% from a previous close of 7.220%. The medium-term R157 was at 8.470% from 8.360% at its previous close, while the long-term R186 was at 9.170% from 9.065% before.
The rand was bid at R7.4638/$ from a previous close of R7.3200.
A local bond dealer cited the weak rand as the major reason for the weaker bond performance today, with the slight uptick in PPI being largely shrugged off.
Atlantic Asset Management, meanwhile, explains why local funds remain a little jittery.
"Perhaps the details of the latest government bond auction highlights the technical issues facing the local bond market, irrespective of whether the fundamentals appear favourable for rates," said Atlantic Asset Management today.
Government offered R1.7bn R209 (2036 maturity) - together with R600m R206s as well - this past Tuesday.
"While the R206 appeared a flying success, clearing 2bp through the secondary market, it was the R209 details that underscored our fears that in time issuance will cause severe indigestion. The bonds cleared a record-breaking 5bp above market, while it required another record-breaking 34 bids to clear the auction. If this is a bit technical, take our word for it that this qualifies as a shocker!" said Atlantic.
SA's producer price index (PPI) registered deflation of –3.3% year-on-year (y/y) in October from –3.7% y/y in September, Statistics South Africa (Stats SA) data today showed.
The PPI decreased 0.1% on a monthly basis after September's monthly decrease of 3.2%.
The PPI was expected to have decreased at 3.1% y/y according to a survey of 10 leading economists by I-Net Bridge, with forecasts ranging from –2.8% to -3.7% y/y.
The price action of the benchmark R157 shows that it was yielding 8.425% just before the release of PPI at 11:30 and weakened to 8.430% within a few minutes and then further to 8.440% just under 20 minutes after the PPI print had hit the wires.
Foreigners were net buyers of R1.583bn worth of local bonds including repo transactions on Wednesday after net sales of R934.071 million worth of local bonds on Tuesday, Bond Exchange of South Africa statistics show.
Nominal cumulative volume was R23.367bn on Wednesday from R16.023bn on Tuesday.
Foreigners were net buyers of 1.581 billion rand worth of local bonds excluding repo transactions on Wednesday after net sales of R930.310 million worth of local bonds on Tuesday.
On a year-to-date basis, foreigners have been net buyers of R25.368bn worth of local bonds, excluding repo transactions.
On a year-to-date basis for total transactions, including repo transactions, foreigners have been net sellers of R3.928bn worth of bonds.