BESA sets new benchmark in monthly bond turnover

BESA recently recorded a new benchmark for monthly domestic bond turnover of R1.486 trillion nominal for February 2008. These figures translate to average trade per day of R70.8 billion, compared to R56.9 billion in February 2007 and R41.3 billion in February 2006 respectively and come on the back of record turnover on the Exchange for 2007 of R13.8 trillion nominal.

Weekly data indicate that the highest weekly nominal turnover was recorded in the third week of the month when Minister Manuel delivered his Budget speech in Parliament on 20 February 2008.

Daily turnover peaked at R132.8 billion on 19 February 2008, coinciding with government’s weekly bond auction.

However when reviewing non-resident activity, the market remained mixed with increased net outflows from the domestic market during February. When compared to the previous month, total net outflow was however lower and, as at the end of February, net foreign outflows for the year-to-date totalled R15.8 billion.

During February, local financial markets responded to developments on a global level where negative news flow from the US continued. Expectations of a US recession in 2008 contributed towards risk aversion amongst some investors and a flight from emerging markets. This placed pressure on the local exchange rate as portfolio capital outflows were recorded.

Notwithstanding infrastructure challenges, the government maintained a disciplined fiscal stance, projecting a negative net borrowing requirement over the medium-term and limited net issuance of long term bonds for the 2008/09 fiscal year.

Although the Reserve Bank left interest rates unchanged at the end of January, the depreciation in the local exchange rate led to increased inflation expectations reflected in increased bond yields in February and vigorous activity on the bond market. The yields on the benchmark R153 and R157 widened by 30 basis points in the month under review and, should uncertainty over the future of the US economy linger and domestic inflation expectations remain heightened in the months ahead, domestic bond market activity is likely to remain robust.