Bonds extend gains, oil slide seen curbing inflation

Yields on South African government bonds maintained their downward march on Thursday.

FILE: Yields on South African government bonds maintained their downward march on Thursday, hitting five-week lows as the recent slide in oil prices puts the brakes on inflation expectations. Picture: Gadeeja Abbas/EWN

JOHANNESBURG - Yields on South African government bonds maintained their downward march on Thursday, hitting five-week lows as the recent slide in oil prices puts the brakes on inflation expectations.

The yield on the benchmark issue due in 2026 ticked down 7 basis points to 7.645 percent, its lowest level since early December.

Oil has halved in price over the last six months and on Thursday steadied at around $51 a barrel.

Falling oil prices helped South Africa's headline consumer inflation rate slow to 5.8 percent in November from 5.9 percent in October.

Crucially, this is within the central bank's 3 to 6 percent target range, making it less likely it will raise interest rates aggressively or soon.

"A lot of the momentum rests with oil, it is not just inflation expectations here but globally, so there is a big shift to bonds," said Sean McCalgan, a market analyst at financial consultancy ETM Analytics.

"But the rand is a risk factor, we are expecting it to weaken further in tandem with dollar strength," he said.

The rand, which lost about 10 percent of its value in 2014 to the resurgent dollar, was 0.75 percent firmer in late Thursday trade at 11.5910 to the greenback.