SA’s bonds poised for sharp weakening this week
No one is really keen to buy bonds until some stabilisation in the dollar is realised, Rand Merchant Bank analyst Gordon Kerr says
South African government bonds steadied on Friday morning, but headed for sharper weekly losses.
Like the rand, local bonds have borne the brunt of the shift in global risk perceptions.
The yield on the benchmark R186 hovered around 8.50% in early trade, which was significantly higher than 8.32% at the start of the week, according to Iress data.
As bond yields move up, prices go down and vice versa. The yield on R186 also reflects the cost of government borrowing.
"At this stage, top-side momentum [selling] continues to be slowing down; and with that said, no one is really keen to buy bonds until some stabilisation in the dollar is realised," Rand Merchant Bank analyst Gordon Kerr says.
"As such, we remain at the whim of the world’s reserve currency, waiting for its next move."
The dollar has stood tall against virtually every other currency over the past few weeks, with some analysts attributing the resurgence to the unwinding of the short positions on the dollar.
The positive change in sentiment came amid higher inflation expectations and strong economic data, which backed a case for higher interest rates.
At 10.12am, the yield on the R186 bond was at 8.4955, from its settlement of 8.50%. The US 10-year treasury yield stood at 3.10%, near its highest level in about seven years.
The rand, which is a key variable in the inflation outlook, was at R12.5496/$, from R12.5994/$.