In December, global monetary policy showed increasing differentiation across major central banks. The US Federal Reserve (Fed) cut interest rates by 25 basis points (bps), continuing its easing cycle as officials agreed that a slowdown in monthly job creation and rising unemployment warranted slightly less restrictive monetary policy. The Bank of England (BoE) also cut rates by 25 bps following a narrowly split vote, noting that while inflation remained above target, it is now expected to fall back towards target more quickly in the near term.

In contrast, as expected, the European Central Bank (ECB) kept policy rates unchanged, stating that policy is in a good place as inflation remains close to target and GDP growth has been stronger. Japan stood out from the rest of the major economies, with the Bank of Japan (BoJ) raising its policy rate by 25 bps to 0.75 percent, taking another step in its exit from ultra-accommodative policy and signalling greater confidence in the sustainability of inflation.

Locally, the latest print for the CPI inflation rate is for November at 3.5% y/y, down from the previous print of 3.6% y/y in October. Core inflation, which excludes food, petrol, and energy, edged slightly higher to 3.2% y/y from 3.1% y/y. Despite the increase, indications are that inflation remains broadly contained.

Third quarter GDP data showed real GDP growth of 0.5% q/q, with nine out of ten industries recording higher gross value added. From a demand perspective, household consumption remained resilient for a fourth consecutive quarter, while gross fixed capital formation rebounded after three consecutive quarterly declines.

Bond yields across major global markets moved higher in December. The 10-year US Treasury yield rose by 15 bps to 4.17%. In Europe, 10-year yields also increased, with Germany up 17 bps to 2.85%, the UK rising by 4 bps to 4.48%, and France up 15 bps to 3.56%.

In contrast, local bonds continued to strengthen. The short-dated R2030 yield fell by 20 bps, while the long-dated R2048 declined by 32 bps. The FTSE/JSE All Bond Index (ALBI) delivered a total return of 2.75% in December, bringing the year-to-date return to 24.24%, with the 12+ years and 7-12 years segments contributing most to the positive performance.

Inflation-linked bonds outperformed nominal bonds over the month, delivering robust positive returns driven largely by the mid- and long-dated segments of the curve. The FTSE/JSE Inflation-Linked Index (CILI) and the Government Inflation-Linked Bond Index (IGOV) recorded returns of 2.76% and 2.85% respectively.

Money market returns remained under pressure in December as short-term rates continued to decline. The 3-month JIBAR rate fell by 3 bps to 6.75%, while the 12-month JIBAR declined by 13 bps to 7.11%. Average yields on Treasury Bills diverged, with the 6-month yield rising by 13 bps to 7.30% and the 12-month yield edging 1 basis point lower to 7.23%. The Alexander Forbes Short-Term Fixed Interest (STeFI) Composite Index delivered a return of 0.62% for the month, bringing the year-to-date return to 7.52%.

The Rand strengthened meaningfully in December, starting the month above R/$17.00 and ending around R/$16.56. Improved global and domestic outlooks, together with US rate cuts that weakened the dollar, supported the currency.

Looking ahead, the National Budget to be delivered in the first quarter of the year will be a key focus for the domestic bond market, with investors looking for clear commitment from National Treasury toward debt stabilisation and expenditure containment.