Geopolitical tensions between the United States and Iran escalated in February, raising concerns about potential disruptions to oil supplies through the Strait of Hormuz. The situation intensified on 28 February when the United States and Israel launched coordinated military strikes on Iran, increasing fears of a wider regional conflict and potential energy supply disruptions. In the markets, risk sentiment deteriorated, triggering a sell‑off in risky assets, boosting demand for safe‑haven assets and causing a spike in oil prices and market volatility.

In parallel, U.S. policy developments made headlines after the Supreme Court ruled in a 6‑3 vote that President Donald Trump had exceeded his authority in using emergency powers to impose certain reciprocal tariffs. Trump responded by insisting the ruling would not end U.S. tariff activity, quickly moving to impose a new 10% global import duty.

The benchmark 10‑year U.S. Treasury yield fell by 30 basis points (bps) to close the month at 3.94%. European yields followed a similar trend: the German 10‑year Bund declined 20 bps, while the UK equivalent dropped 29 bps to finish at 2.64% and 4.23%, respectively. France’s 10‑year yield eased 21 bps, ending the month at 3.22%.

Locally, the Minister of Finance delivered a well-received National Budget Policy Statement on 25 February, with the budget supporting gradual fiscal consolidation and reinforcing confidence in the government’s commitment to stabilising debt levels.

The budget reflected disciplined spending and modest adjustments to revenue projections, particularly with commodity revenue gains appearing understated, implying the potential for higher-than-expected corporate income tax collections.

Much of this information was not new, as it largely reflected adjustments from the Medium-Term Budget Policy Statement; however, the biggest market-moving factor was the SENS announcement following the budget statement of a cut in Fixed Rate Bond issuance, which drove bond yields significantly lower on the day.

Overall, local bond yields continued their declining trajectory in February, supported by the reduction in bond issuance announced in the budget. The impact of geopolitical tensions between the United States and Iran will only be reflected in March’s data, as the conflict escalated on the final day of February, which fell over a weekend.

The government bond yield curve experienced a bull flattening: the short-dated R2030 yield declined by 4 bps, while the long-dated R2048 fell by 27 bps. The FTSE/JSE All Bond Index (ALBI) delivered a total return of 1.74% in February, bringing the year-to-date performance to 3.71%. The 12+ years and 7–12 years maturity segments were the largest contributors to overall performance.

Inflation-linked bonds posted strong positive returns in February, supported by improved market sentiment and broad-based demand across the inflation-linked yield curve. The long-dated I2050 yield declined by 37 bps, while the short-dated counterpart fell by 27 bps. The FTSE/JSE Inflation-Linked Index (CILI) delivered a return of 3.51%, while the Government Inflation-Linked Bond Index (IGOV) recorded a slightly higher gain of 3.6%.

Money market rates continued to trend lower during February. The 3‑month Johannesburg Interbank Average Rate (JIBAR) declined by 8 bps to 6.625%, while the 12‑month JIBAR fell by 13 bps to 6.883%. Average yields on Treasury Bills also moved lower, with the 3‑month yield down 16 bps to 6.66% and the 12‑month yield falling 11 bps to 6.94%. The Alexander Forbes Short‑Term Fixed Interest (STeFI) Composite Index delivered a return of 0.51% for the month.

With two months into 2026, the rand has averaged R16.14/USD year-to-date, stronger than last year’s average of R17.88/USD and reached a high of R15.73/USD during the period. Much of this strength was driven by a weakening U.S. dollar. By the end of February, the rand closed at R15.94/USD, significantly stronger than January’s closing level.

Looking ahead, geopolitics continues to create an uncertain environment and emerging markets such as South Africa tend to come under pressure as investors flock to safer assets. Domestic growth remains muted, while the recent increase in oil prices poses a risk to the inflation outlook. All these factors create a challenging environment for bond yields, despite the positive impact of the bond issuance cut.

We remain committed to a holistic investment approach, anchored in macroeconomic fundamentals and responsive to evolving policy signals.