South African Bond Traders Have Bigger Fish to Fry Than Inflation

JOHANNESBURG (Capital Markets in Africa) – South African bonds were little moved by faster-than-forecast inflation data on Wednesday, suggesting traders are holding steady before Finance Minister Malusi Gigaba’s fiscal update next week.

The yield on the rand-denominated 10-year government bond was up less than two basis points at 8.76 percent after a report showed annual consumer-price growth accelerated for a second month in September. The move was pale in comparison with Tuesday’s 10 basis-point jump following a surprise cabinet reshuffle by President Jacob Zuma, showing investors are more stirred by political developments.

With a number of risk events looming before the end of 2017, including the threat of a widening fiscal deficit in Gigaba’s medium-term budget policy statement on Oct. 25 and its impact on subsequent credit-rating reviews, bond yields are up more than 30 basis points in the past month.

“There is more to brace for going into the rest of the year,” said Steve Arnold, a bond trader at Investec Securities. “The market won’t read too much out of the inflation data. The trajectory is lower from next month. But we are expecting varying degrees of bad in the medium-term budget. We all know that government will have to do some serious thinking and doing about its debt.”

Source: Bloomberg Business News