October 27, 2003

By Reuters

Johannesburg - Bond yields fell to record lows on Friday, as a result of rand strength and expectations of benign inflation data this week, which is seen supporting a further interest rate cut in December, analysts said on Friday.

By 5pm the yield on the short-dated R150 weakened 10.5 basis points to 7.945 percent, an all-time low. The yield on the longer-dated R153 dipped 9.5 basis points to a record low of 8.76 percent.

The rand firmed 11c to R6.88 to the dollar at one point as the dollar continued weak against the euro.

By 5pm it was trading at about R6.89. Analysts expected the rand to extend Friday's gains, riding on the back of dollar weakness.

Traders said the debt market was refocusing on the prospects of an interest rate cut ahead of this week's slew of economic data.  

A Reuters poll of 16 economists saw consumer price inflation excluding mortgage costs (CPIX), targeted by the Reserve Bank for monetary policy, at 5.5 percent - well inside the 3 percent to 6 percent target range for the first time since October 2001.

The index, which strips out home loans, rose 6.3 percent in the year to August. The SA Reserve Bank has already slashed its repo rate by 5 percentage points this year as inflation has subsided and growth slowed.

Markets are pricing another cut of at least 100 basis points in December. On Friday other money market and debt rates fell further, with the average discount rate for three-month treasury bills dipping 8 points to 7.80 percent.