Bonds steady on inflation data as global bond yields fall

South African government bonds were largely unchanged on Wednesday afternoon amid global safe-haven trade, as the rand lost more than 10c against the dollar in intraday trade.

Investors turned to bonds in safe-haven trade on the day. Fear about further contagion in emerging markets, following renewed sharp falls in the Turkish lira, kept investors away from risky assets.

German bund yields plummeted 10% while yields on the benchmark 10-year US bond threatened to test the 3% level again, after rising to a seven-year high of 3.12% earlier.

Sentiment was also negative amid indications that trade talks between the US and China had hit a snag, with President Donald Trump tweeting that he was not happy with the trade negotiations so far.

That was despite earlier comments by US officials that the talks had gone well thus far, with China stating that it would cut the import tariff charged to car manufacturers to 15%.

The market is now awaiting the release of minutes from the US Federal Reserve’s last meeting from May 1-2, due later on Wednesday evening local time.

The strengthening dollar was an indication that the market was pricing in pronounced hawkish sentiment from Fed officials, which would lead to more aggressive rate hikes in 2018.

The publication of the Fed’s May meeting minutes could be a market mover ahead of June’s anticipated rate hike, Dow Jones Newswires reported.

Further weakening in local bond yields were held in check by better-than-expected inflation data released in the morning. The consumer price index (CPI) rose 4.5% in April, slightly better the 4.7% consensus forecast.

The figures come ahead of a Reserve Bank monetary policy decision on Thursday, where the Bank is widely expected to keep rates on hold. Many analysts have also predicted a somewhat hawkish stance from the Bank, due to the recent weakening of the rand, rising oil prices and global political risks, among other factors.

At 3pm, the benchmark R186 government bond was bid at 8.53% from 8.545% and the R207 at 7.32% from 7.315%. The rand was at R12.6259 to the dollar from R12.5703.

The US 10-year treasury was last seen at 3.0118% from 3.0625%. The German 10-year bund was at 0.495% from 0.5585%.