Global & Local Bonds

Global bonds Global monetary policy remained very accommodative over the quarter. The FED kept interest rates unchanged while revising their growth forecast for the US economy from 4.2% to 6.5% for 2021. This is projected to be accompanied by a lower unemployment rate which is estimated to come in at 4.5%. Local bonds Volatility in the bond market remained elevated as continued global stimulus and liquidity triggered inflationary concerns over the quarter. This was further exasperated by the re-opening of global economies which is projected to release significant pent-up demand. The local bond index fell 1.7% as longer-dated SA rates tracked higher global yields. The SARB kept interest rates unchanged given benign inflation while the model projected two 25 basis point hikes to come in 2021. While CPI remained at the lower end of the SARB’s target range, it is... Read More

Local bond market and interest rates The Reserve Bank’s monetary policy committee kept the interest rate unchanged at 3.5% at their final meeting of 2020 even as it revised down its forecast for growth. While underlying economic conditions are easing, South Africa’s recovery remains challenging. Even though inflation is under control at 3.3%, a clear and strong shift to growth is still lacking, requiring more than historically low interest rates. A key consideration remains how to balance growth at sustainable debt levels. The local bond market delivered 6.71% over the quarter, well in excess of cash which achieved 0.97%.

Global Bonds Global bonds were certainly risk on in markets over the quarter underpinned by the gradual reopening of global economies, hopes of a Covid-19 vaccine, as well as government economic policy measures. The Federal Reserve announced its change to its inflation targeting regime in August indicating it would target an average 2% inflation rate but allow for periods of overshoot. This was well received by markets. Corporate bonds enjoyed a positive quarter as riskier assets became more attractive and government monetary policy helped consolidate yields at lower levels. Local Bonds The Reserve Bank’s monetary policy committee left the benchmark interest rate unchanged at 3.5% even as it revised down its forecasts for growth in an economy still navigating its way through the fallout from the coronavirus shock. The Bank revised its GDP forecasts and is now expecting the economy... Read More