Today’s Market Update:

Bond Buyers Pounce at S. African Auction as Rates Decision Nears

By Colleen Goko

(Bloomberg) —

Demand climbed at a weekly auction of South African government bonds on Tuesday, with investors unable to resist yields at the highest level since December even as risks mount, including a looming interest-rate decision at a time when rand weakness is fueling inflation.

The eight primary dealers who buy bonds directly from the government placed orders for 8.84 billion rand ($591 million) of securities, or about 3.7 times the 2.4 billion rand of debt on sale. That was the most in four weeks, and compares with an average of 3.1 since March, according to Bloomberg calculations based on central-bank data.

But it’s still nowhere near the 16.3 billion rand of orders on Aug. 21, when benchmark yields were hovering around 9 percent, compared with 9.25 percent before Wednesday’s sale. That suggests investors are not yet convinced a sell-off in South African bonds and the rand have run their course.

Worries about a surprise rate increase on Thursday aren’t helping. While 16 out of 19 economists in a Bloomberg survey predict the South African Reserve Bank will hold rates at 6.5 percent, forward-rate agreements are pricing in a more-than-50 percent chance of a hike.

Read more on what the markets expect from the MPC later this week

The yield on 2026 government rand notes was little changed on Tuesday at 9.25 percent after rising 8 basis points yesterday. The yield has climbed 57 basis points since August 10, when Turkey’s currency crisis sparked a wide emerging-market sell-off that drove the rand to its weakest level against the dollar in more than two years.

Treasury Yields

Term  Current  Last Month
3 Month2.164%2.033%
6 Month2.349%2.219%
2 Year2.786%2.606%
5 Year2.912%2.741%
10 Year3.020%2.860%
30 Year3.168%3.020%
Yields updated each morning.
Source: Bloomberg

Benchmarks

PRIME5.00%
DJIA26,101.94
Crude Oil$70.40
YEN112.31
Gold$1,199.04
1 Year CMT2.56%
1 Month LIBOR2.164%
Fed Funds Effective1.91%
Next FOMC MeetingSeptember 25-26th
Source: Bloomberg

Economic Indicator Calendar

DateEventPeriodSurveyActualPriorRevised
09/17/2018
Empire ManufacturingSep23.019.025.6
09/18/2018NAHB Housing Market Index Sep 666767
Total Net TIC Flows Jul $46.0b$114.5b
Net Long-Term TIC Flows Jul -$36.5b
09/19/2018MBA Mortgage Applications Sep 15-$1.8b
Current Account Balance 2Q-$103.3b-$124.1b
Housing Starts Aug1235k1168k
Housing Starts MoMAug 5.7%0.9%
Building Permits Aug1310k1311k1303k
Building Permits MoMAug0.5%1.5%1.9%
09/20/2018Philadelphia Fed Business OutSep 15.811.9
Initial Jobless Claims Sep 15210k204k
Continuing ClaimsSep 81705k1696k
Bloomberg Economic ExpectatSep57.0
Bloomberg Consumer Comfort Sep 1659.0
Leading Index Aug0.5%0.6%
Existing Home Sales Aug5.38m5.34m
Existing Home Sales MoMAug0.8%0.6%
Household Change in Net Worth 2Q$1028b
09/21/2018Markit US Manufacturing PMISep55.054.7
Markit US Services PMISep55.054.8
Markit US Composite PMI Sep54.7
09/24/2018Chicago Fed Net Activity IndexAug 0.13
Dallas Fed Manf. Activity Sep31.030.9
Source: Bloomberg