* Market sees chance of domestic rate cut this year
* Rand steady, market eyes on U.S. Fed meeting
JOHANNESBURG, June 20 (Reuters) – South African government
bonds rallied on Wednesday and yields wilted to all-time lows
after consumer inflation data surprised to the downside, backing
the case for the Reserve Bank to cut domestic interest rates
later this year.
The rand hovered near its overnight closing levels, coming
off earlier five-week highs as lingering uncertainty over
Europe’s debt problems keeps investors jittery.
The yield on the three-year paper fell 8 basis
points on the day to 5.97 percent while that for the 14-year
bond was down 6.5 basis points at 7.96 percent.
“Continued support from offshore buyers for South African
bonds, which looks like will be around until October, coupled
with inflation surprising to the downside today has given bonds
a bidding tone,” said Steve Arnold, a bond trader at Investec.
Consumer inflation slowed more than expected in May, coming
back into the central bank’s 3-6 percent target range at 5.7
percent year-on-year and raising expectations the central bank
may have room to cut interest rates further from current three
decade lows.
Foreigners have also been steadily accumulating local debt
in readiness for South Africa’s inclusion in Citigroup’s World
Government Bond Index from October.
Analysts say the inclusion could result in portfolio inflows
of up to 9 billion rand ($1.1 billion).
Continued…
