JOHANNESBURG: South African government bonds edged higher on Wednesday with the market still receiving a boost by the inclusion of government paper in Citigroup's World Government Bond Index (WGBI) from the start of the week.
The yield on the three-year benchmark was 2.5 basis points lower at 5.39 percent and that for the 14-year issue dropped 3 basis points at 7.53 percent.
By 0655 GMT, the rand was down 0.87 percent at 8.444 versus the dollar after closing on Tuesday in New York at 8.3700.
"There's still a large overhang of long positions from the expectations of the inclusion in WGBI," said Ashley Dickinson, a bond trader at Renaissance Capital.
The long-awaited debut in the WGBI - first announced in June but not officially effective until Oct. 1 - puts South Africa alongside 22 other countries on the index, tracked by an estimated $2 trillion worth of funds.
But investor sentiment has also been tempered by a one-notch downgrade by Moody's last week of South African government bonds and weeks of wildcat strikes that have spread through the mining sector responsible for about six percent of gross domestic product.
"The market is possibly a little on the defensive for now, with the uncertainty over the strike action and the potential spread of that action," Dickinson said.
Speaking at a meeting of the Nordic-South African Business Association on Tuesday, Reserve Bank Governor Gill Marcus said inflows into the South African bond market could not be sustained at current levels though she expected demand to continue for some time.
Marcus added that foreign accounts had purchased about 84 billion rand ($10 billion) worth of local bonds since the start of the year, driven partly by WGBI-related demand.