JOHANNESBURG: South Africa's rand gained versus the dollar on Monday and government debt followed suit as appetite for riskier assets rebounded after an Italian election result that initially met with market favour.
The rand hit a session high of 8.8095 to the greenback, its strongest in more than a week, and was 0.4 percent firmer on the day at 8.8275 by 1530 GMT.
Government bonds also edged higher with the yield on the market benchmark due in 2026 ending the day 3 basis points lower at 7.215 percent.
The paper due in 2015 shaved off 3.5 basis points to 5.25 percent.
"A lot of it has to do with the currency which is rebounding with demand for riskier assets globally," said Richard Farber, a bond trader at WWC Securities.
"The market seems to have been buoyed by the results of the Italian election, so we've seen some demand for peripheral euro zone debt and that's also filtering through to the South African bond market."
On the domestic front, markets will focus on Finance Minister Pravin Gordhan's budget speech on Wednesday for government's borrowing plans in the face of reduced tax revenue. Any hints of increased issuance will weigh on the bond market.
Gordhan will probably widen the 2013 - 14 budget deficit projection slightly to 4.7 percent of GDP from the 4.5 percent seen last October, economists polled by Reuters on Monday said.
"There is a risk of up to a 10 billion rand increase in borrowing over the financial year ending 2013, should the Treasury move to lower its 2013 GDP forecast from 3.0 percent toward the current consensus of 2.6 percent," Bank of America Merrill Lynch analyst Matthew Sharratt said.
"Concerns about heavy issuance in years to come has kept the long-end of the bond yield curve much steeper relative to swaps," Sharratt noted.
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