Fresh assault on rand dispels wishful thinking
AN IMPROVED rand, some short covering and a general feeling of well-being caused bond rates to fall during the early part of this week. There was even a suggestion that the worst may be over. A fresh assault on the rand dispelled that notion.
By the end of the week, the long-dated R153 had risen from its week's low of 15.41% to 16.42% in Friday late afternoon trade on the news that Moody's was thinking of downgrading SA's debt rating.
Volatility continues to sort the men from the boys, and we have again seen long bonds trade within a one percentage spread during the week. A leading bond analyst reports that this is the most vicious bear market the country has ever seen. I am sure few primary dealers would disagree. While the market may be trying hard to look for good news, it is difficult to see what would drive bond rates down apart from an unlikely injection of foreign capital. Economic data will make dismal reading over the next few months as the effects of the sinking rand and higher interest rates push inflation higher. Foreign exchange reserves, assuming we still have any, will provide little reason to be bullish and it's too early to see the effects of the weakened currency on the trade balance.
However, the principal reason to be wary about the bond market is the high level of provincial indebtedness, which must eventually impact on the central borrowing requirement.
David Bullard Top of page