Bonds weaker on speculation of a Cabinet reshuffle

The South African bond market was weaker on Tuesday morning‚ taking its cue from the rand‚ which had shed a further 2.09% from its previous close.

The rand traded sharply lower against the dollar on Monday following news that Finance Minister Pravin Gordhan had been recalled by President Jacob Zuma from an investor roadshow in the UK.

This has renewed speculation of a Cabinet reshuffle‚ which could see Gordhan being removed from his post.

The benchmark R186 bond‚ which usually tracks the rand‚ was 1.94% weaker from Monday’s close due to perceived political risk.

At 09.01 am the R186 was bid at 8.89% from Monday’s 8.72% and the R207 at 7.90% from 7.74%.

Rand Merchant Bank (RMB) analyst John Cairns said investor roadshows were extremely important and unexpectedly cancelling one‚ with no explanation‚ made investors nervous.

“Add an embattled finance minister‚ plus a potential Cabinet reshuffle‚ and you get the sell-off we saw today.”

The bond market attracted a net R5.2bn worth of foreign flows over the past week. Total bond inflows stand at R8.49bn so far in 2017‚ eclipsing net local equity sales of about R32bn in the same period.

Nedbank analysts said equity outflows remained “the order of the day”.

The Reserve Bank’s monetary policy committee meets on Thursday. The bank is expected to keep the repurchase rate on hold but is likely to revise down its inflation forecast for 2017‚ which currently at about 6.4%.

-TMG Digital/BDLive

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