The yield on South Africa’s benchmark 10-year government bond on Friday fell to 8.15%, the lowest since September 2019, reflecting the appreciation in the exchange value of the rand and lower domestic interest rates as sentiment towards the country’s assets enjoys a purple patch.
A 150 basis points reduction in the repo rate since late 2024 and the official shift to a lower inflation target also boosted bonds, with the latter providing a strong incentive for readjusting yields lower.
The yield on 10-year South African rand-denominated government bonds decreased notably from a recent high of 10.99% on April 7, 2025, further eroding the embedded risk premium.
The fall in the yield is more pronounced compared with levels it was trading in on the eve of the 2024 general election where the yield was quoted at more than 12% — with Friday’s numbers representing a decline of more than 380 basis points since the polls, which produced a government of national unity.
The decline in the yield, required by investors to loan funds to the government, reflects inflation expectations and the likelihood that the debt will be repaid.
Government bonds generally tend to sense turning points in the macro cycle before equities as they respond to changes in monetary policy, inflation trajectories, fiscal stability and the broader growth outlook.
South Africa’s debt to GDP has doubled since the start of the millennium, while debt across both emerging and developed markets has increased only marginally by multiples of 1.2 times to 1.6 times.
— Nishan Maharaj, head of fixed interest at Coronation
The decision by S&P Global Ratings last year to raise South Africa’s credit rating for the first time in nearly two decades also boosted government bonds, with a consecutive primary surplus for the first time since 2009 also aiding the country’s fiscal outlook.
Nishan Maharaj, head of fixed interest at Coronation, said despite South Africa’s recent bond outperformance relative to US treasuries and its emerging market counterparts, longer-term fiscal metrics remain quite poor.
“South Africa’s debt to GDP has doubled since the start of the millennium, while debt across both emerging and developed markets has increased only marginally by multiples of 1.2 times to 1.6 times,” Maharaj said.
“In addition, South Africa’s growth has been lacklustre, underperforming emerging and developed economies in the past five years despite very strong bond performance. These metrics would have to see a dramatic turnaround to justify the current levels and relative valuation on South Africa bond yields.
“Therefore, at current levels, it seems that South Africa’s bond valuations have run ahead of fundamentals, baking in a fair deal of good news, requiring a significant acceleration in reform momentum to propel the country’s growth closer to the required 3%.”
The rand has also seen an outperformance relative to its emerging market peers with the local currency strengthening an impressive 12.38% over the past year.
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