S.Africa bonds gain on inflation hopes, rand up

JOHANNESBURG (Reuters) – South Africa’s government bonds gained on Wednesday on a lower than expected power price increase that cast the inflation outlook in a brighter light, while the rand firmed slightly after the dollar slipped.

Government bonds cheered the decision by South Africa’s energy regulator to approve an average power tariff increase of 25 percent for the next three years, way down on utility Eskom’s request for 35 percent a year.

The increase was also down on market predictions and in line with the central bank’s assumption in its inflation forecast.

Also, earlier data showing the targeted consumer inflation was slower-than-expected in January could see CPI back in the 3 to 6 percent target range earlier than the second quarter that the Reserve Bank has predicted.

“Bonds started the day a bit firmer, CPI helped them along and with Eskom I think there was a knee-jerk re-pricing,” Kennedy said. “Generally, the inflation story is good, a little bit better than the Reserve Bank’s models as well.”

Economists said the 6.2 percent year-on-year print for inflation — against expectations of 6.4 percent — and the lower Eskom price increase could help keep interest rates lower for longer, and some added it opened the way for a rate cut next month.

The yield, which moves inversely to the price, on the 2015 bond fell 8 basis points for the session to 8.255 percent, just off a 5-month low hit earlier, while the 2036 yield was down 7 basis points to 9.065 percent.

STOCKS DOWN, RAND UP

The rand was trading at 7.76 to the dollar at 1550 GMT, 0.5 percent firmer than its previous close in New York.

“It has been fairly steady. There hasn’t been much going on … there wasn’t any real reaction to the data or the ruling by the energy regulator,” Nicholas Kennedy, emerging markets analyst at 4Cast, said.

“(The rand) has been helped by the fact that euro/dollar has been a bit steady today.”

The dollar fell against the euro after data showed sales of new U.S. homes dropped sharply in January, and after U.S. Federal Reserve Chairman Ben Bernanke reiterated economic conditions warranted low interest rates.

Stocks, though, fell across the board, tracking other markets lower, led by miners as precious metal prices dropped — the JSE Top-40 index fell 0.5 percent to 24,186.19 points and the All-share index fell 0.45 percent to 26,933.08 points.

JSE traders said investors were nervous ahead of Bernanke’s speech, which came through after the local stock market closed.

“The markets tracked a fairly tight range for most of the day and I wouldn’t say there have been real factors to drive the market,” said one Johannesburg-based trader.

“The Eskom price hike was lower than the market was anticipating and inflation was better than expected, so those are positive things. Otherwise, on the trading side, this market’s been going sideways.”

African Rainbow Minerals fell most amongst the blue chips, down 3.18 percent at 173 rand, while junior gold miner DRD Gold slumped 7.55 percent to 4.53 rand.

Other miners also dropped, with the JSE gold mining index losing 1.12 percent and the platinum index shedding 1.5 percent on lower precious metals prices.

Mid-cap construction firm Murray & Roberts fell 2.11 percent to 39.05 rand after reporting a drop in full-year profit as half-year earnings slumped 34 percent.

Gainers on the day included Blue Label Telcoms, which rallied 4.44 percent at 4.70 rand after reporting its first-half results, and Nedbank, due to report its full-year results on Thursday, gained 1.33 percent at 122 rand.

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S.Africa bonds gain on inflation hopes, rand up

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