SA Bonds firm in thin morning trade

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Independent Newspapers

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Johannesburg - The South African bond market was firm in thin morning trade on Wednesday on the back of the US fiscal cliff deal.

"Risk assets have gained from the US fiscal cliff deal so both the rand and bonds are firmer this morning‚" a local bond dealer said.

At 8.41am the benchmark R186 was trading at 7.250% from a previous close of 7.265%. The R157 was trading at 5.320% from 5.325% previously and the R207 was bid at 6.270% and offered at 6.255% from its previous close of 6.270%.

At the end of May the R157 closed at 6.390%‚ the R207 at 7.645% and the R186 at 8.375%.

The rand was last bid at R8.4288 to the US dollar from R8.4517 previously.

Dow Jones Newswires reported that the fiscal cliff deal is now in the hands of the House of Representatives in the US Congress though opposition loomed. The House convened New Year's Day with an uncertain timetable to consider a budget agreement that would boost income-tax rates for the first time in 20 years‚ maintain unemployment benefits and delay spending cuts that were part of the cliff.

In early comments‚ House members expressed the same anguish senators had Monday: whether their many reservations outweigh the potentially calamitous results of allowing the tax increases and spending cuts to remain in effect‚ especially with markets reopening Wednesday.

House Majority Leader Eric Cantor told reporters Tuesday that he does not support the Senate-approved fiscal cliff deal. Cantor's defection was the latest and clearest sign that the agreement reached between President Barack Obama and Senate leaders faces an uncertain fate in the House. Alarmed by the Republican opposition‚ House Democrats have called for a straight up-or-down vote on the measure. House Republicans were talking openly about amending the legislation and sending it back to the Senate for action. This could imperil the measure.

"If voted through‚ this deal may avert the imminent crisis but postpones the critical decisions - it is a temporary plaster‚" noted Louise Cooper‚ analyst at CooperCity. "Kicking the can down the road is not just a European game - the Americans are playing it too."

US Treasury bonds fell on New Year's Eve over hopes of a last-minute deal to avert a US fiscal crisis‚ yet the benchmark 10-year yield made the lowest year-end closing level on record.

It was the second straight year the yield closed below 2% at year-end and was even lower than 1.88% at the end of 2011 and 3.3% at the end of 2010.

Still‚ the yield has risen from an intraday record low of 1.38% set in July. For the year‚ Treasury bonds' 2.1% return through Friday lagged far behind 16% in high-risk‚ high-yield corporate bonds and over 10% in Standard & Poor's 500-stock index.

Foreigners were net buyers of R635.388 million of South African bonds including repo transactions on Monday - the last trading day of 2012 - after net purchases of R275.368 million of local bonds on Friday‚ data from the JSE shows. This brough net purchases for 2012 to R85.373 billion.

8.41am Bid Range so far Previous Close

(6.41am)

R186 (2026) 7.250% 7.250% - 7.250% 7.265%

R157 (2016) 5.320% 5.320% - 5.320% 5.325%

R207 (2020) 6.270% bid n/a 6.270%

Bond Exchange of SA (in billions of rand)

Friday Monday

Nominal cumulative volume R29.996 R26.008

Net foreign purchases/(sales) R0.275 R0.635

Net foreign purchases/(sales) in 2012: R85.373 billion

Net foreign purchases in 2011: R37.501 billion

Repo rate: 5.0%

- I-Net Bridge


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