The independence of the US Federal Reserve has come under renewed scrutiny following the Trump administration’s attempt to remove Governor Lisa Cook, a move temporarily blocked by a federal court. While the Fed is legally shielded from political interference, the episode underscores rising pressure on the central bank to align policy with the White House’s agenda, particularly regarding interest rate cuts. Markets remain sensitive to the risk of politicised monetary policy, with investors demanding higher compensation on long-term Treasuries amid uncertainty over the Fed’s credibility.

The release of the July 29–30 FOMC minutes triggered only a modest market reaction, but highlighted growing concerns over U.S. inflation pressures from recently implemented tariffs. While the Committee acknowledged downside risks to growth and employment, they raised concerns on the inflationary impact of tariffs, dampening hopes for a September rate cut. However, at Jackson Hole, Fed Chair Jerome Powell suggested a rate cut could be justified, stating that he is more concerned about economic weakening than a sustained increase in inflation.

Locally, headline inflation rose in line with consensus to 3.5% y/y in July from 3.0% in June. Core inflation, which excludes food, petrol, and energy, increased only slightly to 3.0% y/y from 2.9% in June, reflecting that the rise was mainly driven by food and energy. August was not a meeting month for the SARB, so interest rates remained unchanged. With the SARB revising its preferred inflation target downward from 4.5% to 3.0%, however, markets continue to price in potential future rate cuts.

Bond yields across major markets were mixed in August. The 10-year US Treasury yield fell by 15 basis points (bps) to 4.23%. In Europe, 10-year yields moved higher: Germany by 2bps to 2.72%, the UK by 15bps to 4.72%, and France by 16bps to 3.51%.

Locally, the yield curve was also mixed: the short-dated R2030 declined by 11bps, while the long-dated R2048 rose by 7bps. The FTSE/JSE All Bond Index (ALBI) delivered a total return of 0.7% in August, bringing the year-to-date return to 10.3%.

Inflation-linked bonds outperformed nominal bonds, particularly in the 7–12-year and 12+ year sectors, with the FTSE/JSE Inflation-Linked Index (CILI) and the Government Inflation-Linked Bond Index (IGOV) recording returns of 1.46% and 1.48% respectively.

Money market returns remained under pressure in August, as short-term rates continued to trend lower. The 3-month JIBAR rate declined by 12bps to 7.017%, while the 12-month JIBAR fell by 3bps to 7.442%. Average yields on 6-month and 12-month Treasury bills also declined by 25bps to 7.39% and 16bps to 7.59%, respectively. The Alexander Forbes Short-Term Fixed Interest (STeFI) Composite Index delivered a 0.57% return for the month.

The rand continued to gain on US dollar weakness. Since the start of the year, the rand has appreciated 6.8%, driven largely by dollar depreciation. The local currency reached a high of 17.44 on August 22, its strongest level in nine months, but closed the month at 17.66 following some volatility.

Looking ahead, local economic fundamentals support a lower yield environment over the medium term. Domestic growth remains subdued, and inflation is expected to stay contained in the near term. Monetary policy is likely to remain accommodative, providing room for further downward pressure on yields. The global backdrop remains challenging, however, with ongoing geopolitical uncertainty. We continue to follow a holistic investment approach anchored in macroeconomic fundamentals and responsive to evolving policy signals.