Bonds firm on rate cut hopes

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Independent Newspapers

File photo: Simphiwe Mbokazi.

Johannesburg‚ Sep 3 (I-Net Bridge) - South African bonds were firm in afternoon trade on Monday on hopes that the South African Reserve Bank would cut interest rates later this month.

"The price action in the short end of the market indicates that some investors are building positions based on rate cut expectations after several countries in Asia and Europe reported poor August PMIs‚" a local bond trader said.

At 3.51pm‚ the benchmark R157 bond was trading at 5.400% from 5.480% at Friday's close. The R207 was trading at 6.510% from Friday' close of 6.545%‚ and the R186 was trading at 7.330% from 7.420% previously.

The rand was bid at R8.4291 per dollar from Friday's close of R8.3870.

The South African seasonally adjusted Purchasing Managers Index (PMI) lost 0.8 index points in August‚ but remained in expansion territory at 50.2 index points from 51 in July.

An index level of below 50 represents contraction in the manufacturing sector‚ while a reading of more than 50 signifies expansion in activity.

Kagiso Tiso Holdings said the latest reading placed the average PMI reading for the first two months of the third quarter at 50.6‚ which was lower than the average levels achieved in the first (55.4) and second quarters (51.8) of this year.

On a positive note‚ the employment index gained four points and rose to 51.

Dow Jones Newswires reported that Asia's manufacturing downturn deepened in August as China weakened sharply‚ adding to pressure on governments and central banks to do more to prevent a sharper slowdown caused by flagging demand from Western markets.

China's manufacturing sector - the engine for much of Asia's economy - slumped further‚ with activity shrinking at the fastest pace since the depth of the global financial crisis and at a faster clip than preliminary data showed last month‚ according to HSBC Purchasing Managers' Index data Monday.

The HSBC China manufacturing PMI fell to 47.6‚ the lowest since March 2009‚ from July's 49.3‚ worse than the August preliminary reading of 47.8 and below the key level of 50.0 that separates expansion and contraction.

Foreigners bought a net R152.706m of South African bonds including repo transactions on Friday after net purchases of R1.039bn of local bonds on Thursday‚ data released by the JSE show.

Nominal cumulative volume was R59.470bn on Friday from R65.658bn on Thursday.

Foreigners were net buyers of R75.105m of local bonds excluding repo transactions on Friday after net purchases of R1.004bn of local bonds on Thursday.

For the year to date foreigners have been net buyers of R68.400bn of local bonds‚ excluding repo transactions. In 2011 they were net buyers of R47.359bn worth of local bonds‚ excluding repo transactions.

In the year to date foreigners have been net buyers of R68.155bn of local bonds including repo transactions. In 2011 they bought R37.501bn worth of local bonds.

3.51pm Range so far Previous Close

R157 (2016) 5.400% 5.400% - 5.580% 5.480%

R207 (2020) 6.510% 6.485% - 6.650% 6.545%

R186 (2026) 7.330% 7.330% - 7.525% 7.420%

Bond Exchange of South Africa (in billions of rand)

Friday Thursday

Nominal cumulative volume R59.470 R65.658

Net foreign purchases/(sales) R0.153 R1.039

Net foreign purchases/(sales) in 2012: R68.155 billion

Net foreign purchases in 2011: R37.501 billion

Repo rate: 5.0%

-I-Net Bridge


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