Bloomberg News

South Africa’s Bondholders Pare Inflation Bets Before Auction

June 30, 2011

June 30 (Bloomberg) -- South Africa’s bondholders are paring bets on stronger price increases before a sale of inflation-linked debt after credit growth slowed and producer prices climbed less than economists expected in May.

The Pretoria-based central bank will auction 600 million rand ($88.2 million) of inflation-linked debt maturing in 2022, 2028 and 2033 at its weekly sale tomorrow, according to Reserve Bank data on Bloomberg. The auction is at 11 a.m. in Pretoria, with results announced 30 minutes later, the bank said.

The yield difference, or breakeven rate, between 10-year linkers and similar-maturity fixed-rate bonds dropped three basis points, or 0.03 percentage point, to 5.83 percent today. The rate, which reflects investors’ outlook for inflation, has declined from 6.22 percent on March 10. Credit growth in Africa’s biggest economy slowed to 5.18 percent in May, from 6.18 percent in April, the statistics agency reported today, less than economists’ median estimate of of 6.3 percent.

“We still believe that there is not sufficient evidence that stronger growth is resulting in demand-side pressures on inflation,” Carmen Altenkirch and Dennis Dykes, analysts at Nedbank Group Ltd. in Johannesburg, wrote in a research note. “With consumer demand relatively subdued and only modest credit growth, the risk of second-round inflation building any momentum seems modest.”

Producer-price inflation accelerated 6.9 percent, from 6.6 percent in April, the agency said in a separate report. That was less than the 7.1 percent median estimate by economists.

Yields rose at the previous auction of inflation-linked bonds on June 24 as investors bid for 1.4 times the amount of debt allocated. Inflation-linked bonds have returned 3.03 percent this quarter, less than the 3.79 percent return of fixed-rate bonds, according to Bank of America Merrill Lynch data.

--Editors: Ana Monteiro, Gavin Serkin

To contact the reporter on this story: Robert Brand in Cape Town at rbrand9@bloomberg.net

To contact the editor responsible for this story: Gavin Serkin at gserkin@bloomberg.net.


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