SA yields drop below 10%

As fiscal outlook improves.

Yields on South Africa’s benchmark government bonds dropped below 10% for the first time since April 2022, as a global risk-on rally coincides with signs of fiscal stability at home.

The yield on the nation’s generic 10-year bond fell to 9.99% as of 10:23 a.m. in Johannesburg. South Africa’s rand climbed 0.1% to 17.1058 per dollar, its strongest level in 19 months.

Investors are increasingly optimistic that the country’s fiscal policies will stay on track, helped by political and economic shifts since elections a little more than three months ago.

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Goldman Sachs strategists, including Kevin Daly, said in a note to clients that the National Treasury is likely to meet or slightly outperform its fiscal targets, continuing a trend seen since 2021.

“This leaves us bullish on SAGBs, where we think yields can gradually grind lower over time as South Africa’s authorities restore fiscal credibility,” the strategists said. The coalition government, which now includes the Democratic Alliance, known for its commitment to fiscal discipline, reduces the risk of fiscal underperformance, they said.

The strategists recommended a shift into the longer end of the yield curve, saying that recent fiscal outperformance “has not been incorporated into market pricing.”

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