Local bonds steady as global yields continue to fall

South African government bonds were steady on Friday afternoon as US treasuries firmed further in safe-haven trade, and the local market awaited a S&P Global Ratings’ decision due at midnight.

In its previous assessment in November, S&P kept SA’s debt at junk status, but changed its outlook from negative to stable, implying that no further downgrade was expected, analysts said.

Yields on the benchmark US 10-year treasury fell earlier in the week after the US Federal Reserve’s latest minutes revealed a less hawkish stance with two further hikes likely this year, instead of the recently mooted three.

An unsettled global environment also supported US treasuries, with the euro losing further momentum against the dollar on concern of an escalating trade war following US President Donald Trump’s threat to increase tariffs on imported vehicles.

A firmer dollar brushed off news of a canceled summit between the US and North Korea, finding some support after North Korean leader Kim Jong-un said he was still willing to talk.

The euro also came under some pressure following disappointing growth data out of the UK as it might reflect further weakness in the eurozone itself. UK GDP growth dropped to a paltry 0.1% in the first quarter, its lowest rate since 2012.

The pound weakened against the dollar and UK bond yields fell sharply on the news.

At 3pm, the benchmark R186 government bond was bid at an unchanged 8.435% and the R207 at 7.235% from 7.225%. The rand was at R12.5084 to the dollar from R12.4218.

The US 10-year treasury was at 2.9387% from 2.9761%, with the UK 10-year gilt at 1.3271% from 1.3983%.