Filomena Scalise

Johannesburg - South African government bonds pulled back from earlier five week highs on Wednesday as the market bet that a downward surprise in January inflation could be the temporary result of a re-basing.

Headline consumer inflation (CPI) slowed to 5.4 percent year on year in January, well below market expectations of 5.7 percent, Statistics South Africa said.

The January release was the first under a rebasing which give greater weight to items such as petrol and electricity, whose prices are seen trending higher this year.

Government bond yields fell sharply after the data, with the heavily traded benchmark 2026 bond hitting a session low of 7.155 percent. It came back up to close at 7.205 percent, still down seven basis points on the day.

The yield for the short-dated paper due in 2015 dipped 2.5 basis points to 5.3 percent.

“We rallied into the morning because the rand has been relatively strong, and then the CPI print was lower than expected,” Investec bond trader Kgosi Tshite said.

“Afterwards guys realised that inflation number is not necessarily on a downward trajectory, it could be temporary, and they started taking profits.”

The rand was largely flat against the dollar at 8.8730 by 15h25 GMT after ending Tuesday's session at 8.8550.

Traders said investors were less nervous about the currency after dumping it the previous day as a walk-out by workers at an Anglo American Platinum mine spurred worries of a return of the mining labour strife in which at least 50 people died last year. - Reuters