* Bonds retreat after strong foreign inflows
* Rand also takes breather after reaching 5-mth highs
JOHANNESBURG, March 1 (Reuters) – South Africa’s rand
pulled back from the previous day’s five-month highs against the
dollar while government bonds weakened, with comments from the
Reserve Bank about rising inflation pressures suggesting
interest rates will stay firm for some time.
Traders said local debt was also looking a touch overbought
after non-residents purchased about 11 billion rand ($1.47
billion) worth of paper in the first two months of this year, a
sharp reversal from a sell-off of more than seven billion rand
over the same period last year.
On Thursday the yield on four year issue added 7
basis points to 6.68 percent on Thursday while that for the
14-year bond rose 7.5 basis points to 8.305 percent.
Reserve Bank Chief Economist Monde Mnyande said South
Africa’s current macroeconomic climate posed policy challenges
in responding to rising inflation and weak economic activity, in
what the market took as another signal rates will stay at
current levels for a while.
“The Reserve Bank is clearly worried about inflation, and
there’s signs that (economic) growth is picking up a little.
There might even be the off-chance of rates rising later in the
year,” one bond trader in Johannesburg said.
The local market was still vulnerable to persisting
uncertainty about the debt situation in the euro zone, which has
close trading ties with South Africa.
“It’s a nervous market … there’s still uncertainty of what
happens in Greece. It’s just risk-off trade at this point in
time that’s causing a bit of a sell-off in the fixed interest
market,” said Marten Banninga, head of bond trading at World
Wide Capital Securities.
The rand also ran out of steam after touching five
months highs against the dollar on Wednesday.
The currency was at 7.4710 against the dollar by 1721 GMT,
up just 0.59 percent from Wednesday’s close at 7.5150 and off
its strongest level since late September last year of 7.4020.
($1 = 7.4609 South African rand)
(Reporting by Stella Mapenzauswa; editing by Ron Askew)
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