Fixed Income

The US president, Donald Trump, continued to make headlines by reigniting trade tensions and imposing tariffs on Canada, Mexico, the European Union (EU) and China. Canada and Mexico were hit with a 25% tariff on all goods, except for Canadian energy exports, which faced a lower 10% tariff. Additional tariffs were also placed on European cars and Chinese electronics. The escalating trade war raised concerns about global economic stability, as businesses faced increased costs and supply chain disruptions. The move sparked an immediate backlash, with all affected countries threatening retaliatory measures.

Bond yields in major international markets declined in February. The US 10-year Treasury yield fell to 4.21%, down by 33 basis points from the previous month. Similarly, but to a lesser extent, the German 10-year yield declined by 5 basis points to 2.41%, while UK and French yields both dropped by 6 basis points to 4.48% and 3.14% respectively.

US headline inflation increased by 3.0% year-on-year (YoY) in January, accelerating from December's 2.9% increase. Core Personal Consumption Expenditure (PCE), the Federal Reserve's preferred inflation measure, rose by 2.6% YoY, moderating from the previous month’s 2.9% YoY increase. While inflationary pressures appear to be easing, they remain above the Federal Reserve's 2% target.

In South Africa, the Minister of Finance was scheduled to present the National Budget on February 19. However, the budget was rejected by members of the Government of National Unity (GNU), particularly due to opposition to the proposed 2% VAT increase, which was estimated to generate approximately R60 billion in revenue. The National Budget was eventually delivered on 12 March 2025 with a proposed lower VAT increase of 0,5%.

Stats SA updated the Consumer Price Index (CPI) basket weights and included new goods, with January's inflation figures reflecting these adjustments. Headline CPI increased from 3.0% YoY to 3.2% YoY, while core inflation, which excludes food, petrol, and energy, remained stable at 3.5% YoY. Inflation remains contained with a constructive outlook for the year, although risks remain skewed to the upside due to heightened global uncertainty.

The yield on South Africa's shorter-dated R2030 government bond rose by 9 basis points, while the longer-dated R2048 bond increased by 11 basis points. The FTSE/JSE All Bond Index (ALBI) posted a marginal positive return of 0.07%, with small gains largely driven by the shorter end of the yield curve. The 7–12-year and 12+ year maturity buckets declined by -0.03% and -0.12%, respectively, while the 1–3-year and 3–7-year segments delivered modest positive returns of 0.5% and 0.28%, respectively.

Inflation-linked bonds saw yield compressions in January. The yield on the shorter-dated I2028 bond decreased by 27 basis points, while the yield on the long-dated I2050 inflation-linked bond increased by 4 basis points. The FTSE/JSE Inflation-Linked Index (CILI) and the Government Inflation-Linked Bond Index (IGOV) posted returns of 1.00% and 0.99% respectively.

In the money market, the 3-month Johannesburg Interbank Average Rate (JIBAR) remained flat at 7.56% in January, while the 12-month JIBAR increased by 3 bps to 8.15%. The Alexander Forbes Short-Term Fixed Interest (STeFI) index, a common benchmark for money market funds, returned 0.59% for the month.

The Rand weakened slightly in February, closing the month at USD/ZAR 18.69. It reached R19.04 in early February following the announcement of additional US tariffs, including a 10% tariff on oil, gas and other energy imports from Canada, which triggered threats of retaliation and added to market uncertainty.

Looking ahead, we maintain a cautious stance amid heightened global market volatility. We continue to monitor global interest rate policies, inflation trends and their potential impact on local markets. With inflation expected to remain contained, but with persistent risks in play, the pace of rate cuts may be slower than previously anticipated. We remain committed to a holistic investment approach, guided by the many factors influencing interest rate movements.