The SAGB yield curve flattened in May after the March selloff caused by the repricing of interest rates in the US. SAGBs registered a sterling performance, outperforming equities and EME bond markets, except for Argentina. The additional R38.0bn in revenue receipts collected by SARS saw a further reduction in the quantum of weekly fixed bond, taking total issuance per week to the lowest level since mid-2019. Ratings agencies maintain current ratings but remain guarded about South Africa’s ability to revive growth and contain expenditure. Volatility in global financial markets has receded as “Fed speak” assuages inflation concerns and anchors the front end of the curve. A weaker USD and carry trade extended the rally in the ZAR to mid-2019 levels. SA-specific issues such as a sustainable growth trajectory and a primary budget surplus remain uncertain, whereas volatility risk associated with global economic surprises and positioning has increased. The SARB is on hold and willing to tolerate negative inflation-adjusted policy rates as inflation heads back to the mid-point of the target band, and while excess production capacity persists.
What we are watching in June: South Africa: GDP, CPI, COVID-19 infection rates, and vaccine rollout. International: US non-farm payroll data, US CPI, ECB, and FOMC meetings.