Scary warning signs from the SA bond market

While the equity market gets most of the media attention, the bond market is a much better barometer of the state of the real economy. The South African bond market has been through a tumultuous period. After the Moody's downgrade in March, SA government bond yields spiked, but they have since fallen back to near-normal levels despite massive growth in borrowing. What signals is the bond market sending and what does it all mean for interest rates, inflation, and ordinary South Africans? In this episode, featuring content from the Bloomberg P&L podcast, we delve into these issues in depth. – Felicity Duncan.When Moody's downgraded South African government debt to junk back in March, most South Africans were rightly alarmed, particularly when South African Government Bond (SAGB) yields spiked in late March and early April..___STEADY_PAYWALL___.But there are many forces at work in bond markets. The March spike was as much a function of a general emerging markets sell-off as it was of the Moody's downgrade. The anticipated downgrade sell-off was, in reality, far less dramatic than many anticipated, and SAGB yields have recovered over the last month or two and are now close to their late-2019 levels..What does it all mean? Are global markets confident in SA's future? Or are other forces at work? In this podcast, which features content from the Bloomberg P&L podcast, we take a look at both SA and emerging market bond markets..As we discuss, emerging market bond yields – SAGB yields included – are currently being supported by negative yields in developed market bonds. Investors, faced with few options for meaningful returns, are turning to bonds like SAGBs in a search for yield. But markets may be underestimating the risks and the relatively attractive rates available right now to the SA government won't last. Rather, bond market observers argue that, in the medium-term, South Africa is likely to see higher interest rates, more inflation, and difficult financial conditions for indebted households.

Scary warning signs from the SA bond market

Related Stories

Meet Tshepo Mahloele – Big Capitec shareholder, ABSIP’s “CEO of the Decade” now accused by Holomisa as kingpin of corrupt network

PREMIUM: Making of a great editor – the George Palmer playbook

Premium – BizNews global portfolio: ASML joins – so does Adobe as Bull takes hold again

Alec Hogg: Helen Zille predicts SA choice will be DA or EFF