Picture: ISTOCK
Picture: ISTOCK

South African government bonds weakened sharply again on Wednesday afternoon after firming 15 basis points in early morning trade.

Trade was volatile as the market sought direction on expected future yields, brought about by a market conviction that the US Federal Reserve was set to hike interest rates more aggressively.

"As rates in the US continue to drift higher, we expect local bonds to follow suit by trading on the back foot," said Rand Merchant Bank (RMB) analyst Michelle Wohlberg.

Analysts said global bonds remained vulnerable to a stronger dollar, with the euro weakening to $1.1777 from $1.1838 earlier.

After staging their sharpest one-day gain since March 2017 on Tuesday, US treasuries were stable on Wednesday, Dow Jones Newswires reported.

Everything points to the dollar rising further, ING analysts said in a note. "With our rates strategy team feeling there is little to stop US 10-year treasury yields pushing to 3.20%, momentum would certainly seem to back a further dollar advance."

At 3pm, the R186 was bid at 8.5% from 8.475%, after firming to 8.32% in early morning trade, according to Iress data. The R207 was at 7.39% from 7.345%. The rand was at R12.4861 to the dollar from R12.5662.

The US 10-year was last seen at 3.0604% from 3.0751% and the German 10-year at 0.5877% from 0.6435%.

The earlier improvement in the local bond market came as Treasury announced it had successfully placed $2bn worth of notes in international markets, maturing in 2030 and 2048. The transaction was more than 1.7 times over-subscribed in aggregate with investor demand from across all the major financial centres in the US, Europe, the UK, Middle East and Asia, Treasury said in a statement.