Bloomberg
South African bonds have already outpaced global peers, delivering double-digit returns and outperforming every other emerging market this year. But the real gains may just be starting.
Investors are flocking to the nation’s local-currency bonds as the domestic outlook improves and with US interest rate cuts on the horizon, setting the stage for even greater returns.
“There was substantial risk premium baked into local yields” since national elections in May, said Alvin Chawasema, a trader at Sasfin Securities in Johannesburg. “It appears the political backdrop has paved the way for much of that to be priced out, giving non-residents some level of comfort that the ship will be steered in the right direction.”
Improved electricity supply since the start of the year is also expected to boost growth, though the logistics sector remains a risk.
Chawasema said Federal Reserve rate cuts would be beneficial, but their impact will hinge on how South Africa’s fiscal picture and debt metrics develop, with the upcoming medium-term budget policy statement scheduled for October 30 being a focal point.
South African bonds have returned 14.8% this year, the best performance by far in a Bloomberg index of emerging-market local-government debt. Malaysia follows with 8.9%, while the average return sits at 3.2%.
Non-residents have been net buyers of the bonds for seven consecutive days, the longest streak since August 2022 based on settled trades data reported by exchange operator the JSE. Net inflows for the year are now at R23.4 billion ($1.3 billion), on track for the most since 2019.
Meanwhile, appetite at weekly government bond auctions has largely showed sustained and deep demand from domestic investors with a bid-to-cover ratio of over 3 since the elections. Tuesday will see the sale of bonds maturing in 2037, 2040 and 2048 on offer.
