Money flooding into South African bonds

Foreign investors continue to snap up South African government bonds due to their attractive yield and the relative stability of the rand compared to the past. 

Local bonds have also benefited from the Reserve Bank implicitly shifting its inflation target towards the lower-end of its 3% to 6% range. 

The South African government also appears to be repairing its battered finances, with it on track to meet its fiscal targets for the current financial year of stabilising its debt burden and running a wider primary surplus. 

So far, the government’s tax revenue has increased by 10% year-on-year in comparison to a 4% rise in spending, indicating the National Treasury’s policy of fiscal consolidation is working. 

Eskom’s first profit in eight years has also helped boost the fiscal outlook, with increasing hope that the utility will be able to cut its reliance on taxpayer-funded bailouts in future. 

All of this points to a positive outlook for South African bonds, which still have a very attractive yield in comparison to developed economies. 

Crucially, the country also has relatively deep and sophisticated capital markets, making them among the most attractive emerging markets for foreign investors. 

Foreign investors continued to be net buyers of JSE-listed bonds in the second quarter of 2025, snapping up R22.8 billion worth. 

This follows net purchases of R16.3 billion in the first quarter of the year, the Reserve Bank said in its latest Quarterly Bulletin. 

Since the end of the second quarter, foreign investors have continued to pile into local bonds, buying R19.7 billion worth in July and August, JSE data showed. 

This means that foreign investors have bought a total of R58.8 billion worth of bonds in the first eight months of 2025 – significantly more than the R23.6 billion bought in the same period of 2024. 

The Reserve Bank said the net purchases reflected low domestic inflation and declining interest rates, coupled with an expectation that its inflation target could be lowered. 

Foreign investors now hold more than 25% of domestic government bonds, up from 24.2% in November. This indicates increasingly positive sentiment towards South Africa’s financial health. 

This trend can be seen in the graphs below, showing that foreign investors continue to dump local stocks and buy government bonds instead, with the share of foreign ownership of local debt stabilising and beginning to increase. 

Relief on the cards

The steady return of foreign investors to South Africa’s bond market is set to bring relief for the country’s big banks, asset managers and insurers. 

These local institutions have been picking up a greater share of the government’s debt in recent years as foreign investors fled amid increased uncertainty and the state’s deteriorating financial health. 

As a result, local financial institutions became increasingly exposed to a single asset in government debt, posing financial stability concerns at the Reserve Bank. 

With the government increasing its issuance of local debt in recent years and foreign investors leaving the market, banks and insurers have stepped in to absorb the rise in government bonds. 

Apart from this creating financial stability concerns, the rise in government debt issuances has also crowded out private-sector debt. 

Government debt issuances continued to dominate the market, with the state issuing R245 billion worth of debt in the first seven months of 2025. 

While this was 11% lower than the same period of 2024, it still dwarfs private issuances. Financial institutions only issued R2 billion wroth of debt, while non-financial corporates recorded net issuance of R7.8 billion. 

Despite this dynamic, investors remain interested in local debt, with the total turnover of the domestic bond market reaching R33.3 trillion in the first eight months of 2025. 

This is 15.9% higher than the same period in 2024, with the higher turnover also corresponding with higher bond prices. 

Non-residents’ participation rate in the domestic bond market averaged 9.5% during the first eight months of 2025, slightly lower than the 9.9% registered in the same period of 2024. 

The increased interest from investors in local bonds has not been coupled with increased investment in local equities, with investors continuing to dump shares in South African companies. 

Non-residents’ cumulative net sales of domestic-listed shares of R165 billion in the first eight months of 2025 exceeded the net sales of R93 billion in the same period of 2024. 

The persistent sell-off by non-residents in the domestic secondary share market reflected weak domestic economic growth and recurring disputes within the government, the Reserve Bank said. 

The continued strong rise in the government’s debt can be seen in the graph below, with it increasingly crowding out private sector issuances.