In March, global headlines focused on rising tensions in the Middle East, particularly around the Strait of Hormuz. In response to continued military strikes by the United States (US) and Israel, Iran moved to shut down the Strait, a critical route that carries about one-fifth of the world’s oil and gas supply. This disruption sparked a sharp reaction in global commodity markets, with oil prices climbing well above $100 per barrel. The impact extended beyond energy markets, as global equities came under pressure, inflation expectations increased and investors shifted toward a more cautious, risk-off stance.

Several major central banks in developed economies met in March and generally chose to adopt a cautious, wait-and-see stance due to increased uncertainty linked to the Middle East conflict. In the US, the Federal Open Market Committee (FOMC) decided to keep interest rates unchanged, with one member dissenting in favour of a cut (11–1 vote). Updated projections suggest policymakers now expect only one rate cut in 2026, reinforcing a more gradual approach to easing.

In Europe, the European Central Bank (ECB) also left rates unchanged. However, it revised its medium-term inflation outlook upward while lowering its growth forecasts, highlighting ongoing inflation concerns alongside weaker economic prospects. Meanwhile, in the United Kingdom, the Bank of England (BoE) maintained its policy rate, with all members of the Monetary Policy Committee voting unanimously to keep rates on hold.

At home, the South African Reserve Bank (SARB) mirrored the cautious stance seen in developed markets, with its Monetary Policy Committee opting to keep interest rates unchanged at its March meeting. The decision was unanimous and in line with general expectations and broader market consensus. The SARB also revised its inflation outlook higher for both headline and core Consumer Price Index in 2026 and 2027, while leaving its economic growth forecasts unchanged.

Geopolitical tensions between the US and Iran continued to escalate in March driving bond yields higher across the globe. Our local bond market was not immune to the volatility, weakening by more than 6.0% over the period. Both the yields of the long-dated R2048 and short-dated R2030 rose by 119 basis points (bps) in March. The FTSE/JSE All Bond Index (ALBI) had a total return of -6.81%, bringing the year-to-date performance to -3.36%. The 12-month return remains at 19.24%. The 12+ years and 7-12 years maturity segments were the largest detractors to overall performance.

Inflation-linked bonds lost ground in March as inflation expectations weakened on the back of rising fuel prices. The 12+ years inflation linked bond sector lost more than 10% over the period. The FTSE/JSE Inflation-Linked Index (CILI) delivered a return of -5.72%, while the Government Inflation-Linked Bond Index (IGOV) recorded -5.95% for the month.

Money market rates reversed their downtrend in March. The 3‑month JIBAR rose by 12.5 bps to 6.75%, while the 12‑month Johannesburg Interbank Average Rate (JIBAR) was up by 85 bps to 7.73%. Average yields on Treasury Bills also moved higher, with the 3‑month yield up 20 bps to 6.86% and the 12‑month yield rising 76 bps to 7.70%. The Alexander Forbes Short‑Term Fixed Interest (STeFI) Composite Index delivered a return of 0.58% for the month.

The rand has weakened considerably on a trade-weighted basis since the start of the war, particularly against US dollar strength driven by safe-haven inflows. Volatility has seen the rand trade above the R17.00/USD mark, while the oil price spiked above US$110 per barrel. The rand is expected to strengthen when the war draws to a close, but the probability of an extended period of tensions in the Middle East may see the currency remain at these weaker levels for longer. By the end of March, the rand closed at R17.15/USD.

Looking ahead, ongoing geopolitical tensions continue to drive uncertainty, with emerging markets like South Africa often facing pressure as investors shift toward safer assets. At the same time, domestic economic growth remains subdued, while the recent rise in oil prices adds upside risk to the inflation outlook. Together, these dynamics point to a difficult backdrop for bond yields, even when considering the supportive effect of South Africa’s removal from the grey list, an improved S&P credit rating, a perceived improvement in government finances and solid progress made in infrastructure and development projects.

We continue to follow a comprehensive investment approach, grounded in macroeconomic fundamentals and adaptable to changing policy signals.