From below 8.5% at the start of\u00a0July,\u00a0South Africa\u2019s 10-year government bond yield has climbed\u00a0close to 8.7%. Read alongside what is happening in the rest of the\u00a0world,\u00a0this deserves considerable attention.\u00a0<\/p>\n
Global government bond yields have reached their highest level since 2008. The\u00a0Bloomberg gauge of sovereign debt yields rose to 3.72% on 31 August, a level last seen in the middle of the global\u00a0financial crisis. The 10-year US Treasury yield is\u00a0near\u00a04.8%. Japan\u2019s 10-year yield rose above 3% for the first time in 30 years. Germany\u2019s 10-year Bund yield is at its highest since 2011, and Britain\u2019s is at its highest since 2008.\u00a0<\/p>\n
Three forces explain the move. Renewed fighting between the United\u00a0Statesand\u00a0Iran has raised fears of a prolonged disruption to oil flows through the Strait of Hormuz, pushing Brent crude to a one-month high.\u00a0At around $97 a barrel, brent crude prices have jumped 11% in the past month alone and are about 47% higher, year-on-year.\u00a0<\/p>\n
Federal Reserve\u00a0chairman\u00a0Kevin Warsh has\u00a0signalled\u00a0that inflation, which has run above the Fed\u2019s target for five straight years,\u00a0remains\u00a0the priority over supporting growth. Markets now price a\u00a0roughly 70%\u00a0chance of a Fed rate increase in September.\u00a0Meanwhile, governments in Japan, the United\u00a0Kingdom and the US\u00a0are borrowing heavily, and investors are demanding more compensation to hold that debt for longer.\u00a0<\/p>\n
There is a\u00a0fourth\u00a0driver,\u00a0too:\u00a0large technology companies are selling bonds in\u00a0chunky amounts\u00a0to fund artificial intelligence investment. These firms now compete directly with governments for the same pool of investor capital, adding upward pressure on yields across the board.\u00a0<\/p>\n
Return\u00a0of the bond bandits?\u00a0<\/p>\n
Some investors have started calling this\u00a0coordinated\u00a0increase in yields\u00a0the\u00a0return of the\u00a0\u201cbond vigilantes\u201d,\u00a0a term coined decades ago by Ed Yardeni for investors who punish governments running large deficits\u00a0by demanding higher yields.\u00a0Mr\u00a0Yardeni himself is not yet\u00a0convinced\u00a0yields are prohibitively high. But the direction of\u00a0travel is clear. Markets are once again pricing fiscal discipline,\u00a0or\u00a0rather\u00a0the\u00a0lack\u00a0thereof,\u00a0as\u00a0a real cost.\u00a0<\/p>\n
South Africa should read this as a warning.\u00a0\u00a0<\/p>\n
The\u00a010-year yield at 8.9% is still well below the near 11% level reached in 2023, at the height of the load shedding crisis.\u00a0But that comparison invites complacency.\u00a0The 2023 spike was\u00a0largely a\u00a0South African story, driven by a domestic energy crisis and questions about\u00a0the\u00a0country\u2019s\u00a0fiscal path. What is happening now is a global repricing of the cost of holding long-term government debt, and South Africa borrows in a market that increasingly\u00a0has higher costs.\u00a0<\/p>\n
This distinction matters for two reasons. First, it means South Africa\u2019s borrowing costs can rise even if nothing changes domestically. If global investors demand higher compensation for holding any government\u2019s debt, South Africa pays that price regardless of the finance minister\u00a0and National Treasury\u2019s\u00a0efforts to\u00a0consolidate\u00a0spending. Second, it means the room for error has narrowed. A government that runs persistent deficits in\u00a0a world where bond markets are already nervous about deficits everywhere will find willing lenders harder to come by\u00a0\u2014\u00a0and more expensive.\u00a0<\/p>\n
The rand offers a second channel of exposure. It last traded at 15.99 to the US dollar.\u00a0But if US yields keep rising and the US dollar keeps drawing capital away from emerging markets, the rand faces downward pressure independent of anything happening in Pretoria. A weaker rand raises the price of imported fuel and goods, feeding back into\u00a0the\u00a0inflation\u00a0the South African Reserve Bank is trying to manage.\u00a0<\/p>\n
None of this is a case\u00a0for\u00a0panic. South Africa\u2019s debt levels, while high, are not the immediate focus of the global selloff, and the country has weathered worse borrowing conditions in recent years. But the government should treat this moment as confirmation\u00a0of the case for fiscal restraint. The world\u2019s bond markets are demanding proof of discipline from every government that borrows heavily,\u00a0developed\u00a0and\u00a0developing\u00a0alike. South Africa cannot assume it will be judged separately from that global mood.\u00a0<\/p>\n
Chris\u00a0Hattingh\u00a0is executive director at the Centre\u00a0For\u00a0Risk Analysis (CRA). <\/p>\n","protected":false},"excerpt":{"rendered":"From below 8.5% at the start of\u00a0July,\u00a0South Africa\u2019s 10-year government bond yield has climbed\u00a0close to 8.7%. Read alongside…\n","protected":false},"author":2,"featured_media":415383,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":"","_share_on_mastodon":"0"},"categories":[52],"tags":[197428,197434,197431,197427,197430,197429,131,197426,38407,197432,197433],"class_list":["post-415420","post","type-post","status-publish","format-standard","has-post-thumbnail","category-south-africa","tag-bond-vigilantes","tag-emerging-market-debt","tag-fiscal-discipline-south-africa","tag-global-bond-yields","tag-rand-exchange-rate","tag-sa-borrowing-costs","tag-south-africa","tag-south-african-government-bonds","tag-south-african-reserve-bank","tag-sovereign-debt-yields","tag-us-treasury-yields"],"share_on_mastodon":{"url":"https:\/\/pubeurope.com\/@africa\/117232769718036616","error":""},"_links":{"self":[{"href":"https:\/\/www.europesays.com\/africa\/wp-json\/wp\/v2\/posts\/415420","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.europesays.com\/africa\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.europesays.com\/africa\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/africa\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/africa\/wp-json\/wp\/v2\/comments?post=415420"}],"version-history":[{"count":0,"href":"https:\/\/www.europesays.com\/africa\/wp-json\/wp\/v2\/posts\/415420\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/africa\/wp-json\/wp\/v2\/media\/415383"}],"wp:attachment":[{"href":"https:\/\/www.europesays.com\/africa\/wp-json\/wp\/v2\/media?parent=415420"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.europesays.com\/africa\/wp-json\/wp\/v2\/categories?post=415420"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.europesays.com\/africa\/wp-json\/wp\/v2\/tags?post=415420"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}