Foreign investors return to SA’s bond market after three months of selling

After almost three months of unabated selling, foreign investors are making a cautious return to SA’s bond market.

Non-residents were net buyers of the country’s government debt for the second week running last week, as emerging-market sentiment improved and inflation in SA fell short of analysts’ estimates.

The inflows have been small: about R1.6bn since July 9, compared with almost R60bn of outflows in the second quarter, according to JSE data. But the move marks a turnaround from 11 straight weeks of outflows sparked by a stronger dollar and rising US treasury rates.

“Stabilisation of sentiment has led to a reversal of flows back into bond markets” across most developing nations, said Richard Segal, a London-based senior analyst at Manulife Asset Management. “In SA, though, the lower-than-expected June inflation data was a positive and bullish surprise. Assuming the news flow remains relatively quiet then probably, yes, inflows will continue.”

While the threat of more tariffs between two of the largest economies in the world still lingers, SA’s yields are high enough to compensate for the uncertainty in global markets. Among major emerging markets, only Brazil and Turkey, both rated sub-investment, offer better returns. SA’s local-currency bonds are rated Baa3, the lowest investment level, by Moody’s Investors Service.

The second-quarter sell-off saw foreign ownership of South African bonds dwindle to 40.2% in June, from as high as 42.8% in March, according to National Treasury data. Benchmark yields climbed about 85 basis points in that period as the debt lost 17% for dollar investors.

So far this quarter, the country’s bonds have earned a 3% return, the best after Argentina, Brazil and Mexico among 19 emerging markets tracked by Bloomberg Barclays indices. Those gains could accelerate in coming months, with Standard Bank forecasting the yield on benchmark 2026 bonds at 8.3% by year-end, from about 8.77% Tuesday.

Bloomberg