S.African bonds at 7-mth lows, stocks bounce back
By Stella Mapenzauswa and Tiisetso Motsoeneng
JOHANNESBURG (Reuters) - South African government bonds fell sharply on Friday, driving yields to their highest level in 7 months after central bank comments on rising inflation pressures dented prospects of interest rates cuts.
The bond sell-off, a day after the Reserve Bank left its repo rate steady at 5.5 percent, weighed on the rand, pushing the currency to a near 8-week low against the dollar at one stage.
Stocks ended higher, snapping two days of declines as firmer commodity prices and upbeat global equities lifted sentiment, with technicals pointing to further gains.
The yield on the benchmark 2015 bond soared to 7.905 percent, up 22.5 basis points from Thursday's close and reaching its highest level since early July 2010.
The yield on the longer-dated 2026 note rose as high as 8.835 percent, an 18 basis point gain on the day.
"The Reserve Bank left rates unchanged and the market feels they are now looking ahead and seeing higher inflation. It looks like there will not be any more rate cutting," a bond dealer in Johannesburg said.
Another trader said some investors had been caught with unsustainable long positions in the debt market and were looking to liquidate, adding: "We've also seen some activity in the swap market and the sell-off in bonds is also being driven by that."
Central bank Governor Gill Marcus's comments about monetary policy remaining stable for some time also showed in the forward rate agreement market, which suggested interest rates may rise 50 basis points to 6 percent in a year.
"Already stressed by the sharp rand sell-off of the past few days, 9x12's now look to be fully pricing in a 50 basis point rate hike," Absa Capital said in a note.
The rand reached a session trough of 7.14 against the dollar, the softest it has been since November 29, before clawing back some ground, helped by news power utility Eskom would repatriate all funds from a $1.75 billion 10-year bond issued this week.
By 1626 GMT the rand traded at 7.0850 against the greenback, little changed from Thursday's close of 7.0840.
The rand has shed 1.8 percent against the dollar this week, with some traders pointing to a stepped-up drive by the South African Reserve Bank (SARB) to accumulate forex reserves.
RAND SEEN STAYING FIRM
The Bank said on Thursday it would continue to build reserves as and when possible but added the local currency was expected to hold relatively firm.
"The same structural drivers that brought the rand stronger during 2010 remain intact in 2011 (although) in the near term strong profit taking and sizeable outflows from the bond market ... have seen the rand come under pressure," said Tradition Analytics.
Charts show the rand has crossed its 50-day moving average, suggesting a short- to medium-term weakening trend, but it remains above its 200-day moving average, pointing to long-term strength.
Johannesburg's Top-40 blue chip index gained 1.03 percent to 28,808.74 points and the broader All-share index was up 0.95 percent to 32,140.01.
"It's a nice turnaround considering where we were this morning. I think it was just an overreaction to worries about about China's monetary policy," Martin Lentsoane, a trader at NEWS Trading said.
Technicals show the blue chip index could post further gains in coming days. The index traded near its lower Bollinger Band, suggesting it may be oversold.
On Friday, Lewis climbed 3.82 percent to 75.20 rand after the retailer said quarterly sales rose 13 percent.
Miners also gained, lifted by higher commodity prices. Anglo Platinum was 1.26 percent better at 731.07 rand and BHP Billiton improved 1.86 percent to 274 rand.Fri, 21 Jan 2011
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