JOHANNESBURG: South African government bonds hit fresh record highs early on Wednesday, supported by persistent foreign buying and local investors pricing in a dovish central bank statement at a monetary policy decision next week.
The rand firmed 0.27 percent against the dollar to 8.1980 at 0630 GMT, compared to a 8.22 close in New York.
Dealers said although yields have plunged too quickly and aggressively, it was hard to call a reversal just yet as offshore buying showed no signs of easing. Analysts see yields consolidating near their record lows.
"With expectations rising of a rate cut at the next week's SARB Monetary Policy Committee meeting coupled with the World Government Bond Index in October it is a good time to own South Africa bonds," said Warrick Butler, a trader at Standard Bank.
South African debt will be included in Citigroup's WGBI from Oct. 1, the main factor underpinning the increased flows into the market.
The yield on the three-year benchmark bond, the most liquid government debt instrument, was at a fresh record low of 5.865 percent while that on the 2021 issue hit a new low at 7.045 percent.
The 2026 bond yield was at a 10-month low of 7.775 percent, although is likely to meet major resistance around that level.
State rail freight group Transnet also announced it was planning to start an international roadshow to gauge appetite for a euro bond announced last week.
The logistics company is looking to issue at least $500 million to fund a 300 billion rand ($37 billion), seven-year capital expansion programme to upgrade its rail and port infrastructure.
JP Morgan and Standard Bank have been hired as lead arrangers for the bond and Transnet will meet potential investors in London and the United States from July 12 to 18, banking sources said.
Dealers expect the rand to stay range-bound on Wednesday, with little market reaction seen from data due at 0930 GMT that is expected to show business confidence remaining weak in June.
Charts show the rand needs to break through 8.22 support and the 8.06 resistance barrier to move out of the range.
Government will announce issuance plans for its weekly auction of fixed income paper at 0900 GMT.