Bonds weaken as market focus turns to next week’s budget

South African bonds were weaker on Thursday afternoon as analysts said market sentiment remained negative following President Jacob Zuma’s Cabinet reshuffle on Tuesday.

The market is now eyeing Finance Minister Malusi Gigaba’s medium-term budget policy statement next week with the government expected to undershoot revenue targets‚ resulting in a larger budget deficit‚ which would be bond negative.

Rand Merchant Bank (RMB) analyst Gordon Kerr said the bond market remained concerned about the intended R1-trillion nuclear deal. “However‚ there are still buyers around and the global environment was still supportive of local rates‚ albeit at higher levels than before‚” Kerr said.

Bonds traded on the back foot following September’s marginally higher consumer price index (CPI) released earlier. Kerr said some selling was evident in response‚ “implying that the general feeling is that inflation is not here to stay [at present levels]”.

At 3.16pm‚ the R186 was bid at 8.790% from 8.745% and the R207 at 7.455% from 7.415%.

The rand was at R13.5513 to the dollar from R13.5765.

US bond yields were lower in safe-haven trade following reports that the Spanish government was set to impose direct rule in Catalonia.

The 10-year bond yield was at 2.3100% from 2.3432% after earlier rising on speculation that US President Donald Trump was set to announce a hawkish candidate to replace Janet Yellen as US Federal Reserve chairperson in February.

Jitters over the stand-off between Spain and Catalonia continue‚ after Catalan president Carles Puigdemont failed to meet a demand to give up the region’s push for independence‚ Dow Jones Newswires reported. The Madrid government responded by suggesting it would trigger the process for imposing central control — referred to as the “nuclear option” — when it holds a special cabinet meeting on Saturday.

A suspension of autonomy in Catalonia could potentially spur fresh protests and instability for one of the eurozone’s biggest members‚ Dow Jones Newswires said.

The euro showed little initial reaction‚ firming to $1.1832 from $1.1794 while German bund yields were flat at 0.395% .

By: Maarten Mittner – BusinessLIVE

Source: TMG Digital.

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