Unpacking the ZAR’s reduced volatility

It may surprise readers, but through the past two decades, there has been a clear moderation in the ZAR’s measure of volatility. The accompanying chart reflects the historical three-month realised volatility, and it is striking that the trend has been downwards.

Many readers will likely consider this finding to be counter-intuitive. After all, the SA economy has struggled in recent years, and if anything, the behaviour of the bond market shows that there is more risk priced in now than there was during SA’s golden period of between 2005 and 2008.

SA’s fiscal metrics have deteriorated markedly over that time, resulting in two distinct phases, also reflected in the accompanying chart: the first was SA when it was still an investment-grade destination, and the second is when SA’s credit rating fell into junk status.

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