Johannesburg - South African bonds were firmer in midday trade on Tuesday, as eurozone debt pressures directed foreigners to safe haven bonds.
According to Dow Jones Newswires the eurozone economy grew more slowly in the second quarter than at any time since the end of the recession in the same period of 2009, making it more difficult for the currency area to tackle its mounting fiscal problems.
The European Union's official statistics agency Eurostat on Tuesday said the combined gross domestic product of the eurozone's 17 members grew by 0.2% from the first quarter, and was up 1.7% from the second quarter of 2010.
The quarter-on-quarter expansion was the smallest since the second quarter of 2009, when GDP fell by 0.2%, the last of five straight quarters of contraction that accompanied the global financial crisis.
It was a weaker outcome than had been expected. Economists surveyed by Dow Jones Newswires last week had estimated that the currency area's GDP grew by 0.3% on the quarter, and 1.8% on the year.
That marked a dramatic slowdown from the first three months of the year, when eurozone GDP expanded by 0.8% on the quarter. The abruptness of the slowdown raises the possibility that the European Central Bank would soon have to reverse the hikes to its key interest rate announced in April and July.
Meanwhile, at its weekly government auction, the National Treasury received bids totalling R4.06bn for R1.1bn worth of R203 bonds at a clearing yield of 7.525% and bids totalling R2.56bn for one billion rand worth of R214 bonds at a clearing yield of 8.590%.
By 11:50, the benchmark R157 bond was trading at 6.870% from 6.925% at the previous close. The R207 was bid at 7.905% and offered at 7.905% from 7.970% and the R186 was trading at 8.230%
The rand was bid at 7.1468 against the dollar from its previous close of 7.0618.
"The growth data out of the eurozone doesn't look too convincing in terms of its debt problems - the euro is also taking a bit of a knock. On the whole the lack of growth is signalling to the market that all is not well in some economies - so you find solace in bonds and I think that's why short term bonds are rallying.
"To some extent we're also seeing our curve flattening, the guys are picking up the longer dated bonds as well. At the time of the auction the R203s were about 2 points better, while the R214s were at market," a trader said.
While no local data will be released today, Wednesday sees the release of June's retail sales data from Stats SA.
SA's retail trade sales at constant (2008) prices for June are expected to have recovered some ground and increased to 2.7% year on year (y/y), after a y/y growth of 0% in May, according to a survey of leading economists by I-Net Bridge. Forecasts among the eight economists ranged from -1.0% to 3.5%.
Standard Bank economists Adriaan du Toit and Shireen Darmalingam said they expected a recovery in retail sales growth for June.
"Growth in retail sales stalled in May, markedly lower than the consensus estimate of 7.2% y/y and our own expectation of 5.8% y/y. Indeed, the month-on-month (m/m) decline of -4.7% seasonally adjusted was the biggest on record, since 2002, and has put paid to our initial expectation that the surge in April of 10.0% y/y was inflated by the series of holidays in April.
They added that although they expected a rebound in sales growth on a m/m basis, the y/y growth rate is expected to remain relatively depressed at 3.5% y/y.
"With manufacturing production losing steam in the second quarter of 2011, a modest growth print for retail sales for June could reinforce our expectation of relatively lacklustre GDP growth in the second quarter of 2011," the economists added.
Foreigners were net buyers of R1.013bn of South African bonds including repo transactions on Monday after net sales of R3.407bn of local bonds on Friday, data released by the JSE shows.
Nominal cumulative volume was R73.163bn on Monday from R80.647bn on Friday.
Foreigners were net buyers of R1.009bn of South African bonds excluding repo transactions on Monday after net sales of R3.414bn of local bonds on Friday.
For the year to date, foreigners have been net buyers of R47.357bn worth of local bonds, excluding repo transactions. In 2010 foreigners bought net R57.064bn worth of local bonds, excluding repo transactions.
For the year to date for total transactions, including repo transactions, foreigners have been net buyers of R38.499bn of local bonds. In 2010 they bought net R44.541bn worth of bonds.
