SA’s R2030 benchmark bond has rallied — with the yield set to test the 9% level in the coming days — since the May 29 elections, which saw the establishment of a government of national unity (GNU).
The political shift, driven by the ANC’s decision to form a coalition with nine other parties, has fostered optimism around the country’s economic future.
On Wednesday, the bond yield closed at 9.045%, well below the double-digit highs witnessed in May and early June, as investor confidence improved amid the promise of economic reform. The yield peaked at 10.68% on June 5, as politicians haggled over how the GNU would look once formed.
The 163 basis point rally is a direct reflection of renewed faith in SA. The last time the yield closed below 9% was in September 2021.
“Since the election and formation of the GNU we have seen renewed interest in our bond market, with foreign buyers investing quite heavily,” said TreasuryOne currency strategist Andre Cilliers.
According to the latest JSE statistics, foreigners have been net buyers of R60bn worth of local bonds so far in 2024 compared with R34bn at the same time in 2023.
“The strength could also be tied to higher unemployment in the US and recent comments by Fed chair Jerome Powell that the time has come to lower interest rates,” said Cilliers.
Investor sentiment has also been boosted by reduced load-shedding, which has long weighed on the country’s economy. “If you throw the lack of load-shedding into the basket, along with the uptick in economic growth, it becomes easy to understand the positive sentiment by investors,” said Cilliers.
The energy crisis, marked by almost daily rolling blackouts, had been a persistent concern, but with more than 160 consecutive days without power cuts and only 83 days of load-shedding recorded in 2024, there is hope for improved economic growth.
Adding to the momentum are expected cuts in interest rates by the SA Reserve Bank, which raised the repo rate to a 14-year high as unrelenting inflation dogged consumers when the country came out of the pandemic. The rate at which prices rise slowed to a three-year low of 4.6% in July, down from 5.1% in June, providing the central bank with room to ease monetary policy. The Bank’s consumer inflation target is 3%-6%, with its comfort zone being at the midpoint of that range.
A reduction in interest rates could further support the country’s bond market and stimulate broader economic activity.
SA’s economy grew 0.4% in the second quarter from 0.1% in the first, data from Stats SA showed on Tuesday.
Despite the improving economic indicators, business sentiment remains mixed. According to the RMB/BER business confidence index released on Wednesday, there was only a modest increase for the fourth quarter. The BCI rose to 38 points from 35 in the previous quarter, but remains below the neutral 50 mark.
Investec chief economist Annabel Bishop said the post-election confidence, the absence of load-shedding and the expectation of an interest rate cut led to a forward-looking sentiment score of 3, up from minus 17. However, 62% of businesses remained dissatisfied with conditions in the third quarter, albeit an improvement from 70% in the first quarter.
“This indicates that for the current quarter, economic activity for those surveyed is not seen to have improved substantially, risking another quarter of still weak economic growth,” Bishop said.
The rand, which has firmed 6.3% against the dollar since the formation of the GNU, posted its biggest gains in two weeks on Thursday. At 5.30pm it had strengthened 0.75% to R17.7161/$, 0.68% to R19.6354/€ and 0.67% to R23.3072/£.
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