Bonds, shaken and stirred
Synopsis:- The global bond sell-off has deepened, raising yields and borrowing costs for governments and corporations.
- There is no single explanation, several things have happened at once, some good, some bad.
- Stronger economic growth is a good reason for higher rates, while oil prices rising above $100 per barrel is a more concerning one.
- Against this difficult backdrop, the South African Reserve Bank raised its policy rate to 7.25%.
- While the inflation outlook has deteriorated in the short term, the Reserve Bank still expects a return to target by late next year.
- Since inflation is largely due to supply disruptions rather than strong demand, the hiking cycle is likely to be muted, and attention will turn to cuts early next year.
- In the meantime, yield-seeking investors are increasingly spoiled for choice.