FX.co ★ South Africa 10-Year Bond Yield Hovers Near 2-Month Lows

South Africa’s 10-year government bond yield hovered around 8.34%, close to its lowest level since April, as easing geopolitical tensions in the Middle East and reduced expectations of further US Federal Reserve rate hikes bolstered demand for higher-yielding emerging-market debt. The domestic inflation outlook improved in tandem with lower global energy prices following the US-Iran agreement and the reopening of the Strait of Hormuz.

Locally, petrol and diesel prices were reduced on July 1, with another cut anticipated in August. These declines are expected to alleviate inflationary pressures and strengthen the case for the South African Reserve Bank to leave interest rates unchanged at its upcoming meeting. Annual inflation quickened to 4.5% in May from 4.0% in April, largely due to higher fuel costs, while food inflation continued to moderate.

Despite the more favourable near-term inflation backdrop, SARB Governor Lesetja Kganyago noted that inflation expectations remain above the central bank’s 3% target, justifying a cautious monetary policy stance.