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New record high for JSE after interest r... |
Bonds shrug off negative international data
David Bullard
BOND rates dropped across the board this week with the R150 breaching the 13% level on Monday and dropping to a week's low of 12.73% during Friday's session. The gap between the four-year R150 and the 11-year R153 fluctuated between 48 and 60 basis points during the week.
The bond market seems to be shrugging off any negative international data for the moment and concentrating purely on domestic fundamentals. Fears of a Zimbabwean debt default and rising G7 yields had absolutely no effect on a market which has decided to concentrate its focus on the easing money market conditions for now. This week's three-month treasury bill yield fell to 9.96% , its lowest level for well over a decade.
Bearing in mind the sharp drop in money market rates, it would appear there is room for the Reserve Bank's repo rate to fall further.
Apart from a relatively strong currency, buoyant equity market and lower money market rates, there are two other factors which have almost certainly contributed to this week's bull run.
The first is the fact that many dealing rooms closed 1999 with square bond positions just in case of any Y2K problems. They would have been unlikely to have returned from vacation and opened short positions for the new year, hence the scramble for stock.
The second is the effect that written call options will have on the market at these levels. The February close-out is only a few weeks away and the R150 12.75% and R153 13.25% call options are already at or in the money. So pre-closeout bond activity has almost certainly contributed to the bullishness and is likely to do so again next week.
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