Long-term South African bonds rose on Friday after a four-day sell-off fuelled by the government's disappointing budget deficit forecast for next fiscal year.
Dealers said bonds' slide, which took the yield on the 2026 benchmark up more than 30 basis points in four days, was partly driven by knee-jerk foreign selling after the Budget was announced on Wednesday.
That wave of selling has abated and many domestic investors are not willing to sell at current levels, especially given the strength of the rand.
The yield on the 2026 bond was at 8.915 percent late on Friday, down from Thursday's finish of 8.975 percent. The spread with the 2015 bond, which touched a record high of 120 basis points on Thursday before closing at 117 bps, narrowed a further 2 bps.
Generally there shouldn't be any major news that should drive the local (bond) market, but we need to keep a very close eye on what's happening internationally; what impact oil is going to have on inflation in the long run. We'll take our cue from what happens over there, said Alexi Contogiannis, manager of debt capital markets at Standard Bank.
The rand strengthened past the psychological 7.00 level against the dollar as emerging market currencies recovered with a drop in oil prices, and after South African authorities indicated this week that it was not opposed to moderate rand strength.
The dollar broke below technical support at 7.04 rand, the 38.2 percent retracement of its rise this year, to fall as low as 6.9645. It then bounced from moderate chart support on the 100-day average, now at 6.9613, to stand at 7.0100 in late trade compared to its previous close of 7.05 in New York on Thursday.
We're range-bound between 6.95 and 7.10 with both exporters and importers aggressive at the 7.00 handle, so it should stay around that level until those are all taken out, said Brigid Taylor from Nedbank.
But she added, We could see, obviously euro-dependent, a potential pull- back on this rand back down to 6.90 again.
Stocks rose for the first time in four sessions, edging up 0.8 percent as the pull-back in global oil prices eased concern about a shock to growth in emerging markets.
Shares of Remgro gained 3.3 percent after the investment holding firm said it would own nearly 32 percent of financial firm RMB Holdings following a previously announced share-swap deal.
Investors have punished South African stocks since the middle of the month, after the benchamrk Top-40 hit its highest level in more than 2-1/2 years and the broad All-share index touched a record high. But that selling pressure may be abating, as both indexes have moved back to a price-earnings ratio of around 15 times, in line with their historical averages.
We still are in a bullish trend and I wouldn't be the one to bet against that, said Mitchell Gannaway, a trader at Thebe Securities.
The Top-40 index rose 0.81 percent to 28,803.79. The All-Share edged up 0.82 percent to 31,965.59. The Top-40 is down nearly 5 percent from its more than 2-1/2 year high of 30,195.81 hit on February 14.
Still, some investors believe there is little upside for Johannesburg given steeper discounts in developed markets.
Shares of FirstRand rose 2.6 percent, recouping some of their recent losses. The South African bank had fallen 5.2 percent in the previous five sessions.
Likewise, African Rainbow Minerals gained 2.1 percent to 211 rand. The miner had slid nearly 11 percent in the previous five days.
Earnings will continue to be a focus for investors in the coming week, with lenders Nedbank and Standard Bank both due to report results.