JOHANNESBURG: South African government bonds rallied and yields fell in early Thursday trade, still supported by strong offshore demand while some local market players were pricing in a slight possibility of a domestic interest rate cut.
The rand was on a firmer footing against the dollar than in recent days as global investor risk appetite ticked higher, but could turn weaker as concerns about euro zone debt woes persist.
The yield on the three-year benchmark fell by 5.5 basis points to 5.81 percent while the 14-year paper was down 7.5 basis points at 7.415 percent.
"It's probably just more guys having expectations around a rate cut and the rand is a little bit stronger so it's good for bonds," said Ian Scott, portfolio manager at Stanlib.
"There are definitely some market players out there are looking for a rate cut."
Of 23 economists polled by Reuters last week, 21 expected the Reserve Bank to keep the repo rate - the rate at which it lends to commercial banks - at 5.5 percent, with only two seeing a 50 basis point cut.
Governor Gill Marcus will announce the decision at 1300 GMT.
In the poll, seven economists said a 50 basis point cut was in the offing before year-end to spur growth, but 16 saw the central bank maintaining its "no change" of the last 20 months for the rest of the year.
The rand was a touch firmer at 8.1535 to the dollar compared with Wednesday's close at 8.16, in line with a steadier euro, which it closely tracks because of South Africa's strong trading ties with the euro zone.
"Levels closer to 8.1000 are now looking possible, and whilst we would look at such a dip as an opportunity to buy dollars, one cannot exclude the possibility that the rand outperforms in the near term," Tradition Analytics said in a note.ra/
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