Fixed Income

Rising tensions in the Middle East and concerns over potential disruptions to shipping through the Strait of Hormuz prompted a reassessment of global oil supply risks during the month. As a result, oil prices increased as markets priced in the possibility of supply disruptions.

Policy rates remained unchanged across numerous major advanced economy central banks in July, broadly in line with market expectations. The US Federal Reserve (Fed) kept its policy rate unchanged, with the decision drawing dissent from some policymakers. The Fed's continued data-dependent approach and limited forward guidance contributed to uncertainty around the future policy path, putting upward pressure on longer-dated US Treasury yields.

In Europe, both the Bank of England (BoE) and the European Central Bank (ECB) kept policy rates unchanged in July. The BoE's decision was split 6-3, with three members voting for a 25bp rate increase, while the ECB's decision was unanimous. Nevertheless, markets viewed ECB President Lagarde's comments as hawkish, reinforcing expectations of a September rate hike.

South Africa's headline CPI inflation accelerated to 5.0% y/y in June 2026 from 4.5% in May, exceeding market expectations. The upside surprise was driven primarily by passenger transport costs, which surged 8.1% m/m in June after recording only modest increases earlier in the year. Consequently, annual passenger transport inflation accelerated to 12.5% y/y from 4.0%, largely reversing the downside surprise recorded in May, when subdued passenger transport costs contributed to headline CPI undershooting consensus (4.5% versus 4.7%). The sharp rebound in passenger transport inflation was therefore the main factor behind the stronger-than-expected June CPI outcome.

The South African Reserve Bank (SARB) surprised markets by keeping the repo rate unchanged at 7.0% in July. The decision reflected a divided Monetary Policy Committee (MPC), with a 4–2 vote split and two members supporting a 25bp increase.

Global sovereign bond markets weakened in July, with yields rising across most major developed markets. The sell-off reflected renewed inflation concerns stemming from higher oil prices, escalating geopolitical tensions in the Middle East, and expectations that major central banks would keep monetary policy restrictive for longer. Yield curves generally steepened, as long-dated bond yields increased by more than their short-dated counterparts.

The local nominal bond yield curve bear steepened in July, with the yield on the long-dated R2048 bond rising by 37bp, compared with an 18.6bp increase in the yield on the shorter-dated R2030 bond. Yields rose on renewed geopolitical uncertainty and persistent inflationary pressures. The FTSE/JSE All Bond Index (ALBI) returned -1.38% for the month and 16.62% over the trailing 12-month period.

On the money market front, movements were once again muted during July. The 3-month JIBAR decline by just 1bp to 6.98%, while the South African Rand Overnight Index Average (ZARONIA) was largely unchanged for the period. In contrast, Treasury bill yields continued to decline, with the 3-month T-bill falling by 12bps and the 6-month T-bill declining by 9bps. The divergence between JIBAR, ZARONIA, and Treasury bill movements reflects ongoing adjustments in short-term funding markets as the transition from JIBAR to ZARONIA continues.

The South African rand remained volatile in July, weakening by about 0.9% against the US dollar to close at R16.52/USD, from R16.38/USD at the end of June. Volatility was driven mainly by escalating US-Iran tensions, which lifted oil prices and increased risk aversion. Even so, strong trade data and intermittent oil price declines helped support the local currency.

Looking ahead, the near-term outlook for South African fixed income remains cautiously constructive. Attractive real yields, improving domestic fundamentals and supportive valuations should continue to underpin demand for local bonds. However, after a strong rally over the past two years, return prospects are likely to be more moderate and increasingly sensitive to global risk sentiment. The path of oil prices, US interest rates, the rand and domestic inflation will remain key drivers, while uncertainty around the SARB’s easing cycle may keep the yield curve volatile in the months ahead.