In October, the U.S. government shutdown unsettled markets as lawmakers failed to pass a funding bill, forcing several federal departments to halt operations and delaying most economic data releases. The CPI report released on schedule, however, showing inflation easing only modestly, keeping pressure on the Federal Reserve’s cautious stance. Treasury yields initially dipped on safe haven demand but were later pressured by fiscal uncertainty.

Later in the month, attention shifted to the Federal Reserve’s policy meeting. Markets had priced in a near-certain rate cut of 25 basis points (bps), which was delivered by the Fed; however, Chair Jerome Powell’s cautious tone on further cuts unsettled market expectations. He acknowledged progress on inflation, but emphasised data dependency, stating that “policy is not a preset course”, which markets interpreted as signalling a slower and shallower easing cycle than previously anticipated, resulting in increased market volatility.

In September, the latest available print of inflation, headline inflation in South Africa rose to 3.4% y/y from 3.3% in August, in line with market expectations. Core inflation, which excludes food, petrol, and energy, edged up slightly to 3.2% y/y from 3.1% in August, showing that inflation remains broadly under control.

October was not a scheduled meeting month for the SARB Monetary Policy Committee, so the repo rate was left unchanged. Nevertheless, with the SARB lowering its preferred level of inflation from 4.5% to 3.0% and the Fed implementing a 25bps rate cut, markets continue to anticipate potential future rate reductions.

Bond yields across major markets generally moved lower in October. The 10-year US Treasury yield declined by 7 bps to 4.08%. In Europe, 10-year yields also fell, with Germany down 8 bps to 2.63%, the UK 29 bps lower at 4.41%, and France decreasing 11 bps to 3.42%.

Locally, bond yields also eased, with the short-dated R2030 falling 19 bps and the long-dated R2048 declining 7 bps. The FTSE/JSE All Bond Index (ALBI) delivered a total return of 2.56% in October, bringing the year-to-date return to 16.94%. The 12+ years and 7–12 years segments were the largest contributors to performance.

Inflation-linked bonds, on the other hand, lagged nominal bonds, but still posted a modest positive return for the month. The I2050 declined by just 3 bps, with most of the gains coming from the mid- and long-dated segments of the yield curve. The FTSE/JSE Inflation-Linked Index (CILI) and the Government Inflation-Linked Bond Index (IGOV) recorded returns of 1.46% and 1.49%, respectively.

Money market returns remained under pressure in October, as short-term rates continued to trend lower. The 3-month JIBAR rate declined by 3 bps to 3.97%, while the 12-month JIBAR fell by 10 bps to 7.40%. Average yields on 6-month and 12-month Treasury Bills also continued to decline, falling by 6 bps to 7.32% and by 7 bps to 7.43%, respectively. The Alexander Forbes Short-Term Fixed Interest (STeFI) Composite Index delivered a 0.59% return for the month.

Between 1 October and 31 October 2025, the South African rand traded in a relatively tight range against the US dollar, moving between R/$17.15 and R/$17.50. The rand showed modest strength early in the month as global risk sentiment improved and expectations grew that the US Federal Reserve might ease policy rates more aggressively in 2025/26. However, it later gave up some gains as the dollar regained strength amid shifting rate expectations. By month end, the rand closed around R/$17.33, marginally weaker than September’s closing level.

Looking ahead, local economic fundamentals support a lower yield environment over the medium term, although the scope for further declines may be limited. Domestic growth remains subdued, and inflation is expected to stay contained in the near term.

Monetary policy is expected to remain accommodative, but not aggressively so, which could still allow for downward pressure on yields. The global backdrop remains challenging, however, amid ongoing geopolitical uncertainty. We continue to follow a holistic investment approach anchored in macroeconomic fundamentals and responsive to evolving policy signals.