South Africa 10-Year Bond Yield at Near 2-Week High

South Africa’s 10-year government bond yield was around 8.51%, a near two-week high, supported by expectations of policy tightening. SARB Governor Lesetja Kganyago signalled that additional interest rate hikes may be on the horizon, as the global energy shock linked to the Middle East conflict shows signs of spreading across the broader economy. Core inflation, which excludes food and fuel, rose to 3.8% in May from 3.6%, while headline inflation accelerated to 4.5% from 4%. While the signing of the interim US-Iran agreement helped ease energy-driven inflation concerns, uncertainty persisted, with risks extending beyond fuel to food prices due to higher fertiliser costs. Kganyago noted that fertiliser price effects would be more visible in the second half of the year during the planting season, as they feed directly into food prices and may have a longer-lasting impact on inflation. Against this backdrop, traders are pricing in a higher chance of another 25bps rate hike in July.

South Africa’s 10-year government bond yield was around 8.4%, holding near its lowest since April 20, as softer-than-expected inflation data and the looming signing of an interim US-Iran peace deal reduced expectations of monetary policy tightening. South Africa's inflation rate rose further to 4.5% in May from 4% in April, but below analysts' forecasts of 4.7%. Although still above the South African Reserve Bank’s target, it points to relatively contained inflation pressures, with core inflation rising slightly to 3.8% from 3.6%. Meanwhile, the latest developments in the Middle East prompted a decline in oil prices, reducing pressure on the central bank for additional tightening at the upcoming meeting in July. The central bank raised its benchmark interest rate by 25 basis points to 7% on May 28, its first increase in three years, in order to mitigate second-round effects from the global energy shock.

South Africa’s 10-year government bond yield fell toward 8.3%, reaching its lowest level since April 17, as a sharp decline in oil prices improved the inflation outlook and reduced expectations of further monetary tightening. The move followed reports of a preliminary peace agreement between the US and Iran, which includes the lifting of the US blockade and the reopening of the Strait of Hormuz. The agreement is expected to be formally signed in Switzerland on Friday. Nevertheless, investors remain cautious as markets await additional details and the future of Iran’s nuclear program remains unresolved. In its latest Financial Stability Review, the South African Reserve Bank indicated that a prolonged conflict in the Middle East could have warranted another rate hike later this year. The central bank raised its benchmark interest rate by 25 basis points to 7% on May 28, its first increase in three years. Looking ahead, investors are focused on May's inflation report due on Wednesday.