Bonds steady on weaker local PPI and softer US bond market

South African bonds were steady in afternoon trade on Thursday, as the rand recovered from its weakest levels of the day amid a continued sell-off in US bonds.

The rand shrugged off higher producer price index (PPI) numbers for August, as consumer inflation is expected to remain within the Reserve Bank’s targeted 3%-6% band over the next two years.

PPI rose 4.2% year on year in August, from 3.6% in the previous month, mainly due to higher fuel prices.

The outlooks for both producer and consumer inflation were still favourable with both expected to be below the Reserve Bank’s upper target range for the remainder of the year, Nedbank analysts said.

However, rand volatility ahead of the ANC’s elective conference in December will reduce the chances of an interest-rate cut at the final monetary policy committee meeting in 2017, in November.

After keeping rates unchanged at its last meeting, some analysts have cautioned it is unlikely the Bank will reduce rates right ahead of the ANC vote.

Nedbank has forecast further cuts by the Bank at its January, March and May meetings.

At 3pm the benchmark R186 was bid at 8.655% from 8.63%. The R207 was unchanged at 7.355%.

The rand was at R13.5586 to the dollar from R13.5906.

The US 10-year treasury was at 2.3346% from 2.3105% after US estimates of GDP growth for the second quarter came in slightly stronger than expected. The third reading amounted to 3.1%, from a previous 3%.

The dollar was weaker to the euro after US President Donald Trump unveiled his tax reform plans on Wednesday. Tax brackets are set to be reduced to three from seven, and corporate tax cut from 35% to 20%.

However, it is unlikely that the plans will be passed by Congress any time soon.

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