South African bonds were weaker in afternoon trade on Tuesday as the market followed a softer rand following President Jacob Zuma’s 12th Cabinet reshuffle since 2009‚ and his second in 2017.
Among those moved were former state security minister David Mahlobo‚ who has been moved to the energy portfolio and Mmamoloko Kubayi‚ who has been appointed communications minister.
Former higher education minister Blade Nzimande was removed from his post and replaced with Hlengiwe Mkhize.
The rand was 0.7% weaker to the dollar‚ having lost ground before the reshuffle in a stronger dollar environment‚ with analysts emphasising that markets remained focused on next week’s medium-term budget policy statement.
Local bonds felt pressure from the stronger dollar following rumours that a more hawkish US Federal Reserve chairperson‚ in the form of economist John Taylor‚ was the new front-runner to replace Janet Yellen. The news caused local bond yields to steepen slightly‚ in line with US Treasuries‚ which contributed to the halt in the rand’s recovery‚ according to TreasuryOne forex dealer Phillip Pearce.
At 3pm‚ the yield on the R186 was at 8.73% from 8.62% and the R207 was at 7.43% from 7.31%.
The rand was at R13.4324 to the dollar from R13.3274.
Next week’s budget presentation by Finance Minister Malusi Gigaba is crucial‚ with any fiscal slippage likely to elicit some response from the ratings agencies‚ though it is possible they will wait until after the ANC conference in December for any downgrade announcement.
The predicted shortfall in revenue ranges from R33bn to R51bn‚ which could widen the main budget deficit ratio from Treasury’s February 2017 estimate of 3.5% to 4.3%.
“Subdued economic growth leaves SA with very little room to manoeuvre fiscally‚” Momentum Investment analysts said. The South African Revenue Service has voiced its concerns over a disturbing trend in which tax-compliance levels are deteriorating‚ Momentum said.
Global developed-market bonds were mixed with US treasuries weaker while UK bonds were firmer‚ following the release of UK consumer inflation data‚ which showed inflation in September rose to the highest level in more than five years. “However‚ given that the data was close to market expectations‚ it did little to change the near-term monetary policy outlook with a 25-basis point rate hike by the Bank of England expected at the November MPC meeting‚” Barclays Research said.
The yield of the UK 10-year gilt was at 1.3055% from 1.3351%. The US 10-year was at 2.3252% from 2.3037%.
Source: TMG Digital.