Budget measures buoy bonds as Wall Street nears record

South African government bonds strengthened on Wednesday as Treasury announced reduced weekly fixed-rate bond auctions and a new bond buyback programme, while the rand ended the local trading session little changed.

The measures, unveiled alongside Finance Minister Enoch Godongwana’s medium-term budget policy statement, supported demand for government debt by signalling lower bond supply and continued fiscal discipline.

Business Day reported that the benchmark R2035 bond’s yield fell by as much as 16 basis points to 8.575%.

The rand initially strengthened after the speech before surrendering those gains to trade at about R16.39 to the dollar by the JSE’s close.

Godongwana also announced two months of temporary fuel-levy relief, costing an estimated R10 billion in foregone revenue, as households and businesses contend with elevated energy prices.

The bond rally contrasted with a softer equity market. Reuters’ afternoon report put the JSE Top 40 index 0.4% lower. That was an intraday reading, rather than a confirmed closing result.

Domestic economic figures presented a mixed picture. Annual consumer inflation reached 4.5% in September, below the 4.7% expected by economists surveyed by Reuters, but higher fuel prices threaten to push the October reading upwards.

Retail sales volumes increased by 3.3% year on year in August, according to figures released on Wednesday. However, sales fell by 0.3% from July, indicating weaker monthly momentum despite the annual improvement.

On Wall Street, technology shares helped lift the major indices on Wednesday, taking the S&P 500 closer to its record high earlier this month.

The Dow Jones Industrial Average gained 360.21 points, or 0.69%, to close at 52,856.09. The S&P 500 advanced 0.58% to 7,757.17, while the Nasdaq Composite rose 1.05% to 26,702.86.

Reuters reported that results from SpaceX and Super Micro Computer strengthened sentiment towards artificial intelligence-related investments. However, telecommunications shares came under pressure amid concerns about competition from SpaceX.

Japan’s Nikkei 225 gained 0.85% to finish Wednesday at 64,621.24. Energy prices remained a concern for South Africa. Investrade’s Wednesday settlement figures put Brent crude at $108.82 a barrel, up three cents, while US West Texas Intermediate fell 67 cents to $97.15.

Oil subsequently rose in early Thursday trading as further Houthi attacks in Saudi Arabia renewed concerns about Middle Eastern supply disruptions, Reuters reported.

For South Africa, the combination of firmer government bonds and expensive oil creates competing pressures. Lower bond yields support the financing outlook, while higher petroleum prices threaten household spending, transport costs and inflation.

The temporary levy reductions will cushion those pressures, but the eventual movement in local fuel prices will also depend on international petroleum-product prices and the rand.

Sources: Reuters, South African markets and Wall Street reports, 21 October, and oil coverage, 22 October; Business Day, fiscal and retail-sales reports, 21–22 October; Associated Press, US market closing figures, 21 October; AFP, market coverage, 21 October; Investrade, Market Review: October 21.