Global Review July 2025 South African Fixed Income
South African bonds continued to strengthen in June, supported by soft inflation data and increasing market expectations of another rate cut. Sentiment was further supported by commentary from National Treasury and the SARB around a potential shift toward a 3% inflation target. The SARB’s recent working paper, “Less Risk and More Reward,” argues that a lower, more credible inflation anchor would help re-anchor expectations, reduce bond yields, and ultimately lower long-term borrowing costs significantly over time.
Most of the gains on the nominal yield curve in June came from the long end. The yield on the long-dated R2048 bond declined by 28 basis points, while the R2030 yield fell by 22 basis points. As a result, the FTSE/JSE All Bond Index (ALBI) delivered a total return of 2.28% for the month, bringing the year-to-date return to 6.62%. Inflation-linked bonds delivered small positive returns over the period, with the bulk of the performance coming from the 3–7-year maturity bucket.
The FTSE/JSE Inflation-Linked Index (CILI) and the Government Inflation-Linked Bond Index (IGOV) recorded returns of 0.62% and 0.61% respectively for the month. Money market returns remained under pressure in June as short-term interest rates continued to trend lower. Both the 3-month and 12-month JIBAR rates declined by 22 basis points, ending the month at 7.29% and 7.67% respectively. Average yields on 6-month and 12-month Treasury bills also fell 14 basis points to 7.69% and 12 basis points to 7.84% respectively. The Alexander Forbes Short-Term Fixed Interest (STeFI) Composite Index delivered a return of 0.62% for the month.
The Rand saw increased volatility in June, initially weakening to levels over R18.00/USD mid-month as geopolitical tensions in the Middle East triggered a global risk-off sentiment. However, following the announcement of a ceasefire between Israel and Iran, risk appetite improved, allowing the Rand to recover some lost ground. By month-end, it had strengthened to around R17.71/USD. Despite the intra-month swings, the Rand ended June modestly firmer, supported by a weaker US dollar and growing expectations of monetary easing both locally and globally.
Looking ahead, we believe local economic fundamentals continue to support a lower yield environment over the medium term. Domestic growth remains subdued, and inflation is expected to stay contained in the near term. Monetary policy is likely to remain accommodative, creating room for further downward pressure on yields. The global backdrop is less supportive, however, with ongoing geopolitical uncertainty and the risk of ongoing tariff disputes posing potential headwinds. We therefore maintain our holistic investment approach which is anchored in macroeconomic fundamentals and responsive to evolving policy signals.
