BONDS gained a few clips on the improvement in South Africa's CPI number to within the target range, but the rally was short-lived as some selling took place into the strength. The short-term government R154 bond was bid at 7.285% from a previous close of 7.275%. The medium-term R157 was at 8.360% from 8.415% at its previous close, while the long-term R186 was bid at 9.075% from 9.095% before. The rand was bid at 7.3931 to the dollar from a previous close of R7,4446.
A local bond dealer said that the stronger rand was also a factor for the market, but the supply concerns continue to weigh. The price action around the auction reflects the still negative undertone as while the benchmark R157 improved to a yield of 8.340% within 30 seconds of the CPI print hitting the wires (a four basis points gain), it lost one basis point from there 20 seconds later and then lost another basis point, at which point the selling desisted going into lunch. The market was thus 5.5 basis points firmer on the whole after the dust had settled.
Dealers spoken to earlier by I-Net Bridge had, in fact, predicted that while there would be a "mini rally" on an improvement in CPI to below 6%, some profit taking would then quickly ensue, reflecting the volatile nature of the
market and the poor sentiment among locals. The increase in South Africa's consumer price index (CPI), which is used by the South African Reserve Bank (SARB) for its inflation target, was up 5.9% year-on-year (y/y) in October from 6.1% y/y in September, Statistics South Africa (Stats SA) said on Wednesday.
CPI was at 0.0% month-on-month (m/m) after increasing 0.4% in September. It was expected to have receded to 5.9% year-on-year (y/y), according to a survey of 13 leading economists by I-Net Bridge. Forecasts among the economists ranged from 5.7% to 6.1%. Only two economists saw it above the upper 6% limit. In other news this morning, the National Treasury will auction R1,3bn worth of R203 bonds and R800m worth of R208 bonds on November 24. A large auction of this nature did not go well this week, with cover ratios coming in under two times. Local investors are going better offered around these large issues.
Foreigners were net sellers of R934,071m worth of local bonds including repo transactions on Tuesday after net purchases of R552,543m worth of local bonds on Monday, Bond Exchange of South Africa statistics show. Nominal cumulative volume was R16,023bn on Tuesday from R35,793bn on Monday. Foreigners were net sellers of R930,310m worth of South African bonds excluding repo transactions on Tuesday after net purchases of R551,253m worth of local bonds on Monday. On a year-to-date basis, foreigners have been net buyers of R23,787bn 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 R5,511bn
