Money flooding into South Africa

South African bond yields have risen in the year to date on the back of rising inflation and higher interest rate expectations.

At the same time, foreign investors have been buying up South African bonds over the past week, with net purchases rising to R30.71 billion in the year to date, far more than the R26.53 billion purchased over the same period in 2025.

Investec chief economist Annabel Bishop explained that South Africa’s bond market has recently reflected concerns about high inflation and interest rates.

This has seen South Africa’s ten-year benchmark yield rise to 8.68%, which is 76 basis points higher than before the outbreak of the war in the Middle East.

The impact of the Iran war on bond yields is not unique to South Africa, with yields across the world having risen since the conflict started at the end of February 2026. 

Reserve Bank Governor Lesetja Kganyago pointed out in his May Monetary Policy Statement that some advanced economies are now borrowing at rates last seen in the 2000s.

However, Bishop pointed out that South Africa’s bond market has benefited from the Reserve Bank’s new inflation target, which was lowered to 3% in November 2025.

She said the lower inflation target point has been key in structurally lowering yields.

At a recent conference, Kganyago said that while longer-term bond yields moved up with the shock of the Middle East war, the average yield at the government’s main bond auction is still about 150 basis points lower than it was in early 2025.

“The spread of South African borrowing costs over US borrowing costs is now at its lowest since January 2013,” the central bank governor said.

This comes after South African bond markets rewarded fixed-income investors with exceptional returns in both 2024 and 2025, with the All Bond Index (ALBI) having returned 17% and 24%, respectively.

PSG Asset Management fund manager Marc Beckenstrater explained that these returns are far above the norm and that a moderating performance was expected in 2026.

“As the market had repriced strongly as risk perceptions around the local economy and political climate improved, the risk premium decreased, and foreign investors started finding our bonds attractive again,” he said.

“Thus, we entered 2026 with the prospects for local nominal government bond returns looking respectable, if less attractive than over the previous two years.”

The graphs below show South Africa’s 10-year bond yield from 2010 to 2026, followed by the performance of the JSE ALBI from 2015 to 2025, courtesy of PSG and Beckenstrater.

Foreign investors are loving South African bonds

Despite the ongoing global shock of the Middle East war, foreign investors’ appetite for South African bonds seems to have returned following a sell-off over the past few months.

In the year to 27 February, prior to the outbreak of the war, foreign investors had recorded net purchases of R52.03 billion in South African bonds.

This was a strong performance for South Africa’s bond market, with the same period in 2025 having seen foreign investors purchase less than half that amount, at R24.82 billion.

However, immediately after the war broke out, South African bonds experienced a sharp sell-off as risk appetite among foreign investors weakened.

In the week to 13 March, foreign investors sold a net R44.62 billion worth of South African bonds, bringing net year-to-date purchases to R20.18 billion.

The local bond market continued to bleed throughout March and April, with foreign investors’ trading in South African bonds swinging to net sales for the year to date at some points.

Some weeks in April saw a surge in foreign purchases of South African bonds, which helped to recover some of the losses in March. However, the last week of April saw a return to the red. 

In the week to 30 April, net year-to-date purchases from foreign investors had fallen to R12.1 billion.

Foreign investors sold R101.42 billion worth of South African bonds in that week alone, recording net sales of R20.90 billion.

However, as of the end of May, the local bond market appeared to have recovered some of these losses.

The JSE’s most recent weekly market statistics, released on 29 May, showed that foreign investors have now bought a net R30.71 billion worth of South African bonds in the year to date.

In the week to 29 May alone, foreign investors had purchased a net R20.99 billion worth of South African bonds.

The graphs below show foreign investors’ trades in South African bonds since the start of the year, compiled using the JSE’s weekly market statistics.