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The SA Daily 09 July 2018

Bond and rand views stand

Shireen Darmalingam

  • Net bond sales by foreigners continued last week but were contained around R1.4bn (net sales are R40bn year-to-date).
  • The retreat in domestic yields exceeded the decline of EM peers on average, and the spread between SA and EM bond yields narrowed some more. The correlation between SA and EM bond yields has been moderating for some time; it was particularly low last week.
  • The yield curve flattened marginally last week but remains rather steep. Our 8.3% forecast for the R186 bond yield by year-end implies a reasonable real yield in a global context.
  • Global growth forecasts are still rather robust and global confidence indices are not reflecting any noticeable decline. Should downside risks materialise, we will likely adjust our medium-term bond yield and rand forecasts. Our forecasts still assume resilient global growth, although somewhat less than before (see Some rand and bond gains of 09 July 2018, by Elna Moolman).
  • The rand remains vulnerable to global risks. Although it has gained slightly, compared to peers, this relative outperformance is unlikely to last, and we therefore maintain our sub-R13/$ forecast by year-end.

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