SA’s borrowing costs are creeping higher as bond yields rise in response to global uncertainty, rand volatility and cautious investor sentiment — despite falling inflation and a domestic interest rate cut in late 2024.
According to the Reserve Bank’s Quarterly Bulletin for the fourth quarter of 2024, the yield on 10-year rand-denominated government bonds rose from 9.91% in late September 2024 to 10.52% by mid-March 2025.
Higher yields — the interest due on bonds — translate into higher borrowing costs for the government and reflect how investors perceive the country’s economic strength and risk profile.
The Reserve Bank attributed the rising yields to a combination of global and local factors.
“Over this period, concerns about the magnitude and timing of the implementation of the proposed new US foreign trade policies and the depreciation in the exchange value of the rand, among other factors, weighed on domestic bond yields,” the Bank noted.
The increase comes despite contained inflation and monetary policy easing. Headline consumer inflation was stable at 3.2% in February, while core inflation eased to 3.4%, both well within the Bank’s 3%-6% target range. The Bank cut the benchmark repo rate by 25 basis points to 7.5% in November.
Rising bond yields are already pushing up the cost of borrowing for the state. SA’s gross loan debt reached R5.7-trillion by the end of 2024, equivalent to 77.3% of GDP.
Investor sentiment was also reflected in capital flows. The financial account of the balance of payments recorded a net capital outflow of R9.5bn in the fourth quarter, following inflows of R39.1bn in the third quarter.
This shift was driven by foreign investors reducing their exposure to SA assets, and local investors increasing their offshore holdings.
On balance, money flowed out of financial markets in the fourth quarter, particularly through portfolio investment, financial derivatives and reserve assets.
Still, direct investment into SA increased, including fresh capital injections into local subsidiaries, local firms selling shares in their offshore operations and foreign branches repaying loans to their SA parent companies.
To help finance rising debt levels, the government raised more money from global markets, including two international bonds issued in November, which brought in $3.5bn.
In contrast, the private sector pulled back on bond issuances. Banks and corporates issued far fewer rand-denominated debt securities in 2024, a clear shift from the year before when issuance was much stronger.
Still, the total value of outstanding rand-denominated debt — both listed and unlisted, and issued by local and foreign entities — grew by 7.9% year on year, reaching R6.8-trillion at the end of 2024.
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