Africa-Press – South-Africa. South Africa’s ten-year government bond yield has reached a seven-year low, lowering the nation’s debt costs.
Lower government bond yields reduce the government’s debt servicing costs, which helps the government reduce its overall debt burden and free up funds for other expenditures, such as services.
Investec Chief Economist Annabel Bishop noted that South Africa’s benchmark government bond yield has fallen below 8.5% for over a month, reaching 8.36% recently.
Domestic yields have seen a massive strengthening over the last year, improving from 10.50% in January 2025.
The 186 basis point improvement in 2025 represents a notable improvement over the 82 basis point strengthening in 2024, following the weakening of 20 and 120 basis points in 2023 and 2022, respectively.
The nation’s bond yield reached 12.23% ahead of the nation’s 2024 national election, with the weakening caused by fears of a left-leaning coalition in the 2024 elections.
The fear dissipated when the Government of National Unity (GNU) took over following the elections.
“The GNU has, instead, followed fiscal consolidation, not fiscal deterioration in the main, as members, led by the opposition to the main political party, saw multiple budgets last year aimed at limiting expenditure,” said Bishop.
Although elections tend to weaken yields on government debt, the municipal elections—to be held at the end of 2026 or start of 2027—are not expected to result in a sharp rise in risk aversion.
This is because municipal elections do not have a significant impact on the governance of state finances.
Improvements in global markets
Investec Chief Economist Annabel Bishop
The risk-averse sentiment among global investors heavily influences movements in South African bonds.
In good news, the S&P Global Investment Manager Index reached its highest level of 2025 in December, with risk appetite buoyed by expectations of lower interest rates and improved global economic growth.
For South Africa, foreign purchases of South African bonds reached R83.6 billion, driven by improved investor sentiment, with net purchases recorded in the last three quarters of the year.
This was bolstered in the second half of 2025, as global sentiment remains a key factor in South Africa’s bond market.
While global investor sentiment was volatile in 2025, financial markets are shrugging off some of the geopolitical uncertainty amid improving domestic economic conditions.
Interest rate cutting cycles are expected to continue in South Africa and the USA in 2026, with CPI inflation currently expected to be subdued over the coming year.
While Bishop said that rate cuts are not expected to be rapid, she, like the South African Reserve Bank (SARB), sees 75 basis point cuts in interest rates by March 2027, taking the repo rate to 6.00%.
Bishop noted that the 2026 National Budget, to be released next month, will be key for the domestic bond market, with the National Treasury having been very keen to increase value-added tax (VAT) last year.
With South Africa still having a budget deficit of over R280 billion after the first two-thirds of the year, there is growing pressure for further borrowings and potential pressure on yields.
For More News And Analysis About South-Africa Follow Africa-Press
