Bottom Line:

  • Concern over the state of the US fiscus has led to a surge in US Treasury yields recently. Consequently, the SA-US real yield spread has compressed, rendering SA Inc. less attractive and impacting portfolio flows to the country. This has taken a significant toll on the resilience of the ZAR, as evidenced in its month-to-date depreciation.
  • The outlook is more upbeat, however. As the global monetary cycle turns, increased market liquidity will reignite a search for yield that will drive capital flows back to SA’s bonds and, in turn, help the ZAR recover.



As long as the SA-US real yield spread is too narrow to attract inflows into SA’s bond market, the ZAR will likely remain under pressure. However, the ZAR’s medium-term recovery outlook remains intact, with an eventual global monetary easing cycle expected to reignite a search for the kind of yields the SA bond market offers.