Bond Voyage: Foreign capital steers SA’s bond rally

3 Min Read | 871 Words

South Africa’s bond market has had a remarkable year. As you revise fixed‑income calculations for the SAICA board exams, the headlines have started to look like your study notes. Record inflows, soaring bond prices and shifting investor sentiment are no longer theoretical exercises – they are happening in real time.

Here’s what you need to know.

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Attractive yields and better policy draw capital

The FTSE/JSE All Bond Index has been one of the year’s star performers. Local and foreign investors have bought billions of rand of government paper, putting the index on track for its best performance since 2001. Two factors underpin this rally: high real yields at the start of 2025 and a decisive shift in monetary policy. Falling domestic interest rates, subdued inflation and a healthier fiscal position have made South African bonds look compelling. The country’s removal from the Financial Action Task Force grey list has further improved credibility and sentiment. Emerging‑market investors, faced with expensive United States assets and higher commodity prices, are hunting for yield, and Pretoria’s bonds are back on the menu.

The numbers speak

Stanlib chief economist Kevin Lings estimates that foreigners bought roughly US$4.45 billion, or about R77 billion, of South African government bonds during August and September. This two‑month surge is the largest since at least 1994. Izak Odendaal of Old Mutual’s Symmetry describes 2025 as a “scary good” year for local bonds. He notes that bond prices have risen sharply even though economic growth is sluggish, with only two calendar years since 2000 delivering negative returns. He cautions that this performance will be difficult to replicate in 2026, but the momentum highlights how quickly sentiment can turn when yields are attractive and fiscal reforms are credible.

The chart below shows the magnitude of the recent inflows. While purchases were negligible in July, August and September tell a different story – roughly R38.5 billion flowed in during each month. For context, foreigners were net sellers of South African bonds for much of the past decade; such a rapid reversal underscores the strength of the current theme.

Risks to watch

Bond rallies rarely move in straight lines. Much of the recent performance has hinged on a stable rand. The article warns that if the currency weakens sharply, prices can fall just as quickly. Odendaal reminds us of December 2001, when the rand collapsed and bond prices melted down. Successful investors manage currency and duration risk rather than making one‑way bets. Aspiring CAs should understand how bond valuations respond to changes in interest rates and exchange rates, and how hedging instruments can protect portfolios. IFRS 9’s classification and measurement requirements also require careful consideration – particularly when deciding whether to measure bonds at amortised cost or fair value through OCI.

Equities not feeling the love

While bonds have rallied, local equities have been shunned. Foreigners have sold about R165 billion of South African shares in the first eight months of 2025, far more than the R93 billion sold over the same period a year earlier. This outflow has occurred despite a roughly 40 per cent surge in the JSE in dollar terms. John Orford from Old Mutual notes that bonds and shares typically move together in South Africa, but this year the relationship has decoupled. Investors remain wary of the country’s weak growth and political uncertainty, even as they acknowledge the government’s improved fiscal discipline. For equities to rerate meaningfully, faster growth and evidence of successful reforms are needed.

What this means for aspiring CAs

• Fiscal credibility matters. Investors have rewarded South Africa’s improved state finances by buying bonds. Understanding how fiscal deficits, debt levels and public financial management affect market sentiment is essential for the Public Sector Finance and Financial Management modules.

• Yield isn’t everything. High nominal yields attract flows, but real returns depend on inflation, currency movements and credit risk. The SAICA syllabus emphasises evaluating investment decisions using risk‑adjusted returns and scenario analysis.

• Diversification and risk management remain vital. A surge in bond prices does not guarantee future performance. Students should understand duration, convexity and hedging strategies, including interest‑rate swaps and currency forwards.

• Equity‑bond dynamics can diverge. This year’s decoupling between bonds and equities highlights how different asset classes respond to the same macro environment. Aspiring CAs should be comfortable analysing cross‑asset relationships and advising clients accordingly.

• Policy and politics still matter. Investor confidence can evaporate when policy disputes or geopolitical risks flare up. Understanding how regulatory changes – such as the FATF grey list removal – influence investment flows is part of the broader strategic and risk management competencies.

The bottom line

South Africa’s bond market has given investors a lesson in how quickly sentiment can change when yields are attractive and policy improves. As you prepare for the SAICA exams, remember that the theories you study today are playing out in the markets you will one day advise on. Keep an eye on the rand, monitor fiscal discipline and think critically about risk. The next time bond yields make headlines, you’ll be ready to interpret them – with a smile and, perhaps, a little less exam stress.

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