South African government bond yields have dropped to their lowest point since early 2021, driven by a global wave of optimism that United States (US) interest rates will fall further, with two meetings of the US Federal Reserve left for the year.

A government bond is essentially a loan from investors to the state. In exchange, the government promises to pay interest at regular intervals and repay the full amount when the bond matures. These bonds can last from a few years to several decades and are a vital way for governments to raise funds for roads, schools, and other public spending.

The link between South African and US bond markets is strong because global investors constantly compare risk and return. US Treasury bonds are considered the safest benchmark in the world.

When their yields fall, often due to expectations of US rate cuts, money tends to flow into riskier but higher-yielding markets such as South Africa. That inflow of demand drives up bond prices and, in turn, pushes local yields down.

South Africa’s 10-year bond currently yields around 8.8%, down from 10.2% at the start of the year. By comparison, US 10-year Treasuries now stand at 3.9%, down from 4.8% in January. Even after accounting for inflation, South African bonds still offer a real return of approximately 5.5%, making them a compelling option for global investors.

For the South African government, the benefits are clear. Lower bond yields mean it can borrow more cheaply, reducing the cost of servicing debt and freeing up space for other spending priorities.