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South African government bond yields fell sharply amid developments surrounding the United States (US) midterm elections and have remained near those lower levels following South Africa’s 2026 local government elections. This suggests investors have welcomed the results, which saw the African National Congress (ANC) suffer a historic defeat while the Democratic Alliance (DA) strengthened its position.

The yield on South Africa’s 10-year government bond fell from 8.73% on 30 October to roughly 8.44% on Monday, a decline of nearly 30 basis points. Falling yields mean rising bond prices, indicating stronger demand for South African government debt.

The decline in South African bond yields has also pushed the country’s yield differential lower. The yield differential is the difference between South Africa’s 10-year government bond yield and the equivalent US Treasury yield. It provides a measure of the additional return investors demand to hold South African debt rather than US debt.

As South African yields have fallen while US yields have remained relatively elevated, this differential has narrowed to about four percentage points, near the range seen between 2004 and 2007, when South Africa ran a budget surplus and its economic growth rate average was 5%.

The chart below shows how sharply the South Africa/US yield differential has narrowed, particularly since the formation of the Government of National Unity (GNU) in June 2024.

The market views a weaker ANC and stronger DA as a net positive for South Africa. The ANC fell from 46.1% of the national municipal vote in 2021 to 30.8% in 2026, while the DA increased its support from 21.7% to 24.7%. The uMkhonto weSizwe Party (MKP) secured 9.8%, the Economic Freedom Fighters (EFF) fell from 10.5% to 6.2%, and ActionSA increased from 2.6% to 5.7%.

The DA also emerged as the largest party in Johannesburg, Tshwane, Ekurhuleni, and Nelson Mandela Bay, while retaining its majority in Cape Town. Meanwhile, the ANC was the largest party in only two metros, Buffalo City and Mangaung

For weeks The Common Sense has warned that investors were potentially underpricing South Africa's political risks. The concern was not that the ANC would lose support, but rather how the party might respond to losing political power.

Coalition negotiations now under way present very different possible outcomes. An ANC/DA arrangement across the country’s hung municipalities could reinforce the national GNU and support the market’s optimism.

Alternatively, the ANC could cooperate with ActionSA, the MKP, the EFF, and smaller parties to retain control of major municipalities. Such arrangements could undermine the GNU, potentially destabilise President Cyril Ramaphosa’s government, and force investors to reassess South African political risk.

For now, financial markets have welcomed the election results, and the international environment remains supportive.