Bonds maintain stronger bias in lead-up to Bank’s interest-rate meeting

South African bonds held steady at much stronger levels on Monday afternoon‚ taking their lead from a sharp recovery in the value of the rand.

The yield on the benchmark R186 bond‚ which broadly reflects the cost of government borrowing‚ was little changed on the day at 8.640% from 8.665% on Friday.

The performance is a lot better when compared with a week ago‚ when the yield on the R186 hit 9%.

“The benefit of SA’s open‚ deep and liquid bond market is that the government has ready access to funding at reasonable interest rates‚” Old Mutual Multi-Managers analysts Dave Mohr and Izak Odendaal said.

“However‚ with foreigners owning more than a third of outstanding rand-denominated bonds‚ and facing no capital controls‚ our yields will be priced off global yields. Since early 2016‚ SA benefited from a search for yield.”

Counting in favour of local bonds is the relatively low inflation profile‚ which the Reserve Bank has forecast to average 5.7% in 2017.

Headline inflation is expected to have moderated to an annual rate of 5.2% in June‚ from 5.4% in May. Statistics SA will update the inflation figures on Wednesday.

The Bank’s monetary policy committee will announce its decision on interest rates on Thursday. Although the market expects no move on rates this time around‚ the Bank is under pressure to loosen monetary policy to help shore up the weak economy.