Bloomberg News

South African Inflation-Linked Bond Yields Fall at Auction

July 29, 2011

(Updates with analyst’s comment in fourth paragraph.)

July 29 (Bloomberg) -- South African inflation-linked bond yields fell at the weekly government auction of the debt today after producer price data stoked concern of price rises in Africa’s biggest economy.

The Pretoria-based Reserve Bank sold 600 million rand of securities maturing in 2022, 2028 and 2033, according to the central bank’s data on Bloomberg. The average yield on the 225 million rand ($33 million) of 2.6 percent notes due 2028 was dropped 2.5 basis points, or 0.025 percentage point, to 2.575 percent from the previous auction. Investors bid for almost three times the amount allocated.

The 10-year breakeven rate, or yield difference between inflation-linked bonds and similar-maturity fixed-interest debt, climbed two basis points to 5.75 percentage points since yesterday, when the statistics agency reported the price of goods leaving South African factories and mines rose 7.4 percent in June after gaining 6.9 percent in May. The breakeven rate is an indication of bondholders’ outlook for inflation, which reached 5 percent in June.

“As you would expect, inflation-linked bonds continued to rally as inflation fears gather momentum,” Rand Merchant Bank analysts led by Theuns de Wet said in a research note before today’s auction. “This should result in good demand in today’s inflation-linked bond auction.”

The central bank also sold 120 million rand of 2.75 percent bonds due 2022 at an average yield of 2.545 percent, and 255 million rand of 3.45 percent notes due 2033 at an average yield of 2.54 percent.

--Editors: Ana Monteiro, Linda Shen

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

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


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