JOHANNESBURG, Mar 17 – South Africa’s bond market experienced a sharp reversal in investor sentiment, with foreign investors recording their largest weekly outflows in at least six years amid rising geopolitical tensions linked to the conflict involving Iran.
According to data from JSE Ltd., non-residents sold a net 41.3 billion rand (approximately $2.45 billion) worth of government bonds last week, marking the largest outflow since at least 2019.
The selloff represents a significant turnaround from earlier in the year, when foreign investors had been net buyers of South African debt.
Data from National Treasury shows that investors purchased a net 28.6 billion rand of government bonds in the first two months of 2026, following strong inflows throughout 2025.
Analysts at Deutsche Bank said the earlier surge in inflows had left the market vulnerable to a reversal once global risks intensified.
Yields Surge as Market Sentiment Shifts
South Africa’s bond market had rallied strongly in recent months, with the 10-year yield falling sharply as investors responded positively to the country’s improving fiscal outlook and reform agenda.
Foreign investors increased their holdings of fixed-rate government bonds to around 32% by the end of February, up from 30% a year earlier.
However, that trend has reversed since the escalation of tensions in the Middle East.
The 10-year bond yield has risen by more than 90 basis points since the conflict began, reflecting growing concerns about inflation and monetary policy.
The rise in oil prices has heightened fears that the South African Reserve Bank may struggle to maintain its 3% inflation target, particularly as South Africa is a net importer of oil.
At the same time, the cost of insuring South African debt against default measured through credit-default swaps has climbed to a five-month high, signalling increased investor caution.
Investors Reassess Risk Exposure
Market participants say the scale of outflows reflects both global risk aversion and profit-taking after a strong rally in South African bonds.
Asad Bhatti of Invesco said the earlier rally had pushed bonds into “bubble territory,” making them vulnerable to a selloff once external risks intensified.
Similarly, strategists at Deutsche Bank, including Christian Wietoska, advised caution and reduced exposure to South African government bonds amid ongoing uncertainty.
Despite the selloff, some investors see value emerging.
Arif Joshi of Bramshill Investments said South Africa remains an attractive emerging market due to its credible monetary policy framework and improving fiscal trajectory.
Demand at recent government bond auctions has remained relatively strong, suggesting continued domestic and institutional support for the market.
Policy Outlook Becomes More Uncertain
The shift in market sentiment has also affected expectations for monetary policy.
Markets have moved from pricing in interest rate cuts to anticipating a potential rate hike, reflecting concerns about inflationary pressures driven by higher oil prices.
Officials at the South African Reserve Bank, including Deputy Governor Fundi Tshazibana, have indicated that the central bank is closely monitoring market developments and stands ready to act if conditions deteriorate significantly.
However, some analysts caution that the central bank is unlikely to intervene directly in bond markets unless severe dysfunction emerges.
Ruen Naidu of Ninety One said investors are broadly reducing risk exposure as geopolitical tensions persist, leaving South Africa caught in the wider market adjustment.
If the conflict continues and oil prices remain elevated, analysts warn that South Africa’s rate-cutting cycle could come to an end, adding further pressure on bond markets.
