USDZAR swinging around 11.00

The local markets await the US FOMC and local MPC central bank meetings due on Wednesday and Thursday respectively. We therefore expect range-bound trade over the next two days. The 11.00 level for USDZAR remains a key psychological barrier for the markets, and the possible effect that a weaker rand would have on the SARB’s reaction function while CPI is above 6.0%.

Today’s SAGB auction sees NT offer ZAR900m of R2032, ZAR750m of R2044 and ZAR700m of R2048. We expect a good auction, with demand for the long-end. The R2044s still have the larger 100% non-competitive auction option available.

Business Day reports that after the announcement on Eskom’s funding plan (see yesterday’s publication for details), S&P may delay its credit rating decision until full details have emerged. While the 90-day window for S&P’s Credit Watch ends around 20 September, more details on government’s equity injection will only be given at the MTBPS on 22 October. This suggests that any rating decision may be delayed until then.

SAGB turnover was recorded as ZAR16.8bn of nominal bonds and ZAR270m of inflation-linked bonds. The R186, however, constituted a massive 57% of turnover (ZAR9.6bn), with no other bond trading for more than ZAR1bn. The turnover in the R186 was due to offshore investors heavily selling the bonds (-ZAR1.2bn). Offshore investors have now sold more than ZAR7bn in the R186 over the past five trading days. Apart from the selling in the R186, there was little other significant offshore activity; selling was seen in the R204 (-ZAR198m) and R2030 (-ZAR149m), while buying above ZAR100m was in the R203 (+ZAR129m), R207 (+ZAR143m) R213 (+ZAR115m), R209 (+ZAR122m) and R2044 (+ZAR188m).

The local curve flattened as the back-end rallied and front-end sold off. The R186 was half a bp weaker, while the R158 and R159 bonds weakened by 4 and 7 bps respectively. The back-end R2048 strengthened the most, by 3.0 bps. Over the past week, the R2048/R186 spread has flattened by 13 bps and the R186/R203 spread is 3.5 bps flatter over this time period. FRAs had mixed moves yesterday, with very short-dated points remaining unchanged, with marginal moves, both higher and lower, in longer-dated points.

US Treasuries traded slightly stronger on the day, bull-curve steepening. The 10yr YST moved 2.2 bps lower and is now trading at 2.57%. EM FI was, however, slightly weaker on the day, with 5yr local currency sovereign bonds moving 1.7 bps higher on average and 10yr local currency sovereign bonds moving weaker by an average of 0.1 bps. South Africa’s 5yr performance fell in the middle of the pack, with only three out of 10 5yr EM sovereign bonds that we cover, strengthening. In the 10yr bond space, Brazil led the moves stronger, but only four of 11 EM countries had stronger 10yr bonds. Indonesia’s bond market led the weaker moves in both the 5yr and 10yr bond space.

The rand was the strongest EM currency against the US dollar yesterday, strengthening by 0.5%. The local currency was followed by stronger moves in the currencies of Columbia, Turkey and Mexico. The Russian ruble was the weakest on the day, 1.5% weaker against the US dollar. The Indonesian rupiah and Malaysian ringgit were 1.3% and 1.00 weaker against the US dollar. Amongst the 20 EM countries we cover, the average currency move against the US dollar was 0.3% weaker.

Standard Bank returned to the local market yesterday, issuing ZAR2.025bn of senior debt from bids of ZAR4.215bn. ZAR465m of 3yr bonds, ZAR100m of 5yr and ZAR1.46bn of 10yr bonds was issued.

Standard Bank Research published two thematic pieces yesterday, “The Fed, the SARB & the rand: life after “lift-off”” and “MPC meeting: back in a corner”.

Latest SA publications

South Africa FIC: MPC meeting: back in a corner by Bruce Donald (15 September 2014)

TX Thematic: The Fed, the SARB & the rand: life after “lift-off” by Bruce Donald (15 September 2014)

FX Weekly: FOMC & MPC: you go first by Bruce Donald, Marc Ground and Varushka Singh (15 September 2014)

Credit & Securitisation Weekly: S&P comments on local banks by Robyn MacLennan and Steffen Kriel (12 September 2014)

Fixed Income Weekly: Jibar, the repo rate and FRAs by Asher Lipson and Kuvasha Naidoo (11 September 2014)

FX Weekly: ZAR: cheap but still vulnerable by Bruce Donald, Marc Ground and Varushka Singh (8 September 2014)

Fixed Income Weekly: 2013/14 debt management report released by Asher Lipson and Kuvasha Naidoo (5 September 2014)

Credit & Securitisation Monthly: Focus on: ACSA’s FY:14 results by Robyn MacLennan and Steffen Kriel (5 September 2014)

Credit & Securitisation Flash Note: Growthpoint Properties by Robyn MacLennan (2 September 2014)

Credit & Securitisation Flash Note: HomeChoice Holdings Ltd by Steffen Kriel (1 September 2014)

Fixed Income Weekly: SA's revenue conundrum by Asher Lipson and Kuvasha Naidoo (29 August 2014)

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