The reception area of the Johannesburg Stock Exchange. File picture: Leon Nicholas

Johannesburg - Yields on South African bonds fell to one week lows on Thursday with investors allayed by benign inflation numbers, which added to central bank comments signalling steady rates.

The rand gained to a week high against the dollar in afternoon trade.

A survey for the South African Reserve Bank showed 2013 inflation expectations in the second quarter of the year were unchanged at 6 percent, compared with the first quarter.

Investors had feared rising price expectations partly because of the weaker rand exchange rate.

PPI data earlier in the session showed producer inflation slowed more-than-expected to 4.9 percent in May, against market expectations for a 5.2 percent print.

The yield on the 2015 bond, the benchmark for the front end of the yield curve, gave up 25 basis points to 6.07 percent on the day. The 2026 yield dropped 29 basis points to 7.855 percent.

“The rand recovered on the back of strong bonds, a lot of demand came in on the back of a much better PPI number domestically,” said David Gracey, a trader at Investec.

“Local bonds are about 30 points better off than yesterday and there's a general emerging market recovery as well, as a consequence the rand went down to 9.91,” Gracey added, saying the market was now likely to wait for key non-farm payrolls data next week.

Reserve Bank Governor Gill Marcus dulled talk of interest rate hikes because of rising price pressures on Wednesday, saying although the risks made lower rates unlikely, they “do not automatically imply a tightening of the monetary policy stance.”

The local unit, already supported by export earnings ahead of the close of the quarter, gained over 2 percent to 9.9083/dollar, its strongest level in 7 days.

Mining concerns, where unions are submitting wage demands to mining companies, are keeping investors nervous and should keep a lid on any meaningful gains on the rand, along with worries about South Africa's trade account. - Reuters