While the formation of the GNU and the improved energy situation highlight the positive impact of reforms and were clear drivers of the rally in bond yields, the inflation backdrop also played its role in creating an environment for bonds to rally. With inflation having fallen within the South African Reserve Bank’s (SARB) 3-6% target band in June 2023, it continued to hover just above 5% for the most of the first half of the year to June. In the following months, inflation continued to fall with October’s inflation print of 2.8% being the lowest since the 2020 Covid lows. With inflation and inflation expectations being well behaved and central banks globally having embarked on rate cutting cycles, the SARB cut interest rates for the first time in four years. The relatively benign inflation outlook and a SARB that, while initiating a rate-cutting cycle, continued to emphasise its vigilance regarding potential upside risks to inflation created an environment conducive for bonds to rally. Throwing the topic of lowering the SARB’s inflation target into the mix, something the Governor has vocally supported, certainly gave bond bulls a longer-term story to get behind.

From a global investor perspective, the South African investment case was also somewhat less complicated than many other markets. The ongoing political reforms, the visible energy turnaround and the benign local inflationary dynamics all contributed to a relatively compelling investment case for South African bonds. In contrast, various other emerging markets were grappling with worsening fiscal and inflationary dynamics, heightened uncertainty over the potential impact of tariffs following Trumps presidential win, or negative spillovers from political developments.