Filomena Scalise

Johannesburg - South African bonds weakened and yields edged higher on Wednesday after retail sales data surprised on the upside, suggesting the Reserve Bank might not need to cut interest rates further this year to stimulate demand.

The rand gave up some ground against the dollar, reflecting mainly the greenback's broad-based gains as the market scaled back hopes for further stimulus measures from the United States Federal Reserve that would weaken the US currency.

By 16h36 GMT the rand traded at 8.2250 against the dollar, down 0.33 percent from Tuesday's close.

The yield on the heavily traded 14-year government bond climbed 8.5 basis points to 7.575 percent while that for the three-year bonds ended the day flat at 5.68 percent after reaching a session high of 5.735 percent.

“It looks like offshore accounts are only interested in the shorter dates at the moment and locals are sitting out,” a bond trader in Johannesburg said of the sell-off in longer-dated paper.

“The lack of participation may be exaggerating the moves.”

Bonds extended losses after Statistics South Africa reported that growth in retail sales accelerated to 8.3 percent year-on-year in June, outpacing market expectations for a 4.7 percent expansion.

The data suggested that while the rate of expansion in consumer activity would moderate in 2012, it would not be “sharp or dramatic”, Stanlib analyst Kevin Lings said.

“It also suggests that there is less chance of a further interest rate cut later this year,” he added.

Bond yields plunged to historic lows last month after the Reserve Bank unexpectedly cut the benchmark repo rate to 5.0 percent, sounding a dovish policy tone that led the market to price in another reduction before year-end. - Reuters