South Africa 10-Year Bond Yield at Over 1-Week Low

South Africa’s 10-year bond yield eased to below 8.70%, reaching the lowest since mid-May, on easing inflation concerns amid hopes of a Middle East conflict resolution. Meanwhile, domestic investors prepared to the upcoming SARB's meeting scheduled for May 28, which could bring the first hike since May 2023. Headline inflation raced to 4% in April from 3.1% in March, amid rising price pressures from the Middle East, and it is expected to climb further in the near-term. inflation now sits at the edge of the 2.0% to 4.0% “tolerance band” around the actual 3% target that is in place. The South African Reserve Bank is increasingly seen lifting rates by 25 bps to prevent second-round effects from fuels cost pressures. Still, a hold remains possible to better assess the evolution of inflation and developments in the US-Iran conflict.

South Africa’s 10-year bond yield was around 8.91%, holding close to the highest since early April, after local inflation data signalled rising pressures from the Iran-driven energy shock that could lead to higher interest rates. Inflation accelerated to 4% in April, the highest since August 2024, from 3% in March and slightly above forecasts of 3.9%. It now sits well above the central bank’s 3% target and is expected to climb further in the coming months. Economists say that even if a peace deal is reached, crude oil prices are unlikely to quickly return to pre-war levels and should continue to exert upward pressure. The South African Reserve Bank is increasingly expected to raise rates by at least 25 basis points to 7% at its May 28 meeting, its first hike since May 2023. Governor Lesetja Kganyago recently cautioned that the central bank stands ready to act if price pressures intensify and stressed the need to contain second-round effects.

South Africa’s 10-year bond yield rose to around 8.87%, hitting the highest level since early April, as investors weighed the latest developments in the Middle East. President Trump postponed a planned military strike on Iran following a request from Gulf states for additional time for negotiations, easing oil prices. Nevertheless, crude remained near a four-year high, while uncertainty over the Strait of Hormuz kept inflationary pressures elevated, raising the likelihood of interest rate hikes. Domestically, attention turns to South Africa’s April inflation data, which will be closely watched by the central bank for signs of building price pressures amid the Middle East conflict. A Reuters poll suggested headline inflation could rise to 4.9% in April from 3.1% in March, amid a lagged pass-through of higher global oil prices and recent petrol and electricity price hikes.