Having sat through a number of presentations from asset managers on their strategic asset allocations for the fourth quarter of 2024, one of the standout consistencies in their research has been the case for South African bonds.
The logic is as follows – South Africa has one of the highest real yields in the world. While our inflation level is within our target band of 3%-6%, it is unlikely we will see cuts to the extent that the rest of the world, and the US in particular, will see.
The reasoning for this is related to our old friend Eskom. While load-shedding has been absent for some time, Eskom’s financial challenges remain significant. Currently, Eskom is applying for total revenue increases to reach R446 billion by FY2026. This application translates into proposed electricity price hikes for direct Eskom customers of 36.15% for FY2026.
Fortunately, the National Energy Regulator of South Africa (NERSA) has set a more restrained increase of 12-13% for the next fiscal year. Even so, this adjustment is well above inflation and is likely to put upward pressure on consumer prices, as businesses will need to pass some of these increased production costs on to end consumers.
Given these factors, it’s unlikely that South Africa will see rate cuts as substantial as those expected in other parts of the world.
Now, consider the chart below from Charlie Bilello, which illustrates the current repo rates and inflation rates of various countries. The difference between these rates reflects the real return available from holding a fixed deposit – see the column in green.

I’ve marked South Africa with a red dot. Our current real central bank rate stands at 3.6%, making it one of the highest in the world. In comparison, the U.S. has a real rate of 2.5%, and the Eurozone sits at 1.5%.
While countries like Colombia, Brazil, and Russia may offer higher real rates, the country risk associated with these nations is significantly greater than that of South Africa.
The point is that our real rate on offer is incredibly attractive. It’s no wonder this is a theme in all these asset manager research strategy documents.
Here’s another perspective –
Let’s compare the South African 10-year bond yield to the U.S. 10-year bond yield. The charts below illustrate this comparison.


The current yield on the South African 10-year bond is 9.4%, while the U.S. 10-year bond yields 4.3%. That’s a difference of 5.1% difference in yield.
One might assume that we need to account for potential rand depreciation, but that’s not a given. The chart below shows that the South African rand is currently oversold. What typically happens when the rand is oversold? What happened after each spike in the chart below?

Given that our interest rates remain high and that rate cuts in South Africa are expected to be less aggressive than those in the U.S., it’s quite possible that the rand may appreciate against the U.S. dollar over the next few years.
Just think about that. We are currently getting a 9.4% yield, and if the rand strengthens or even holds steady against the current exchange rate, we could achieve a 5% return above what we could earn in the U.S. bond market, with minimal volatility.
It’s no wonder the consensus among asset managers is that our bond market is one of the most attractive in the world.