South African government bonds – an attractive investment opportunity or just too risky?

2020 has been a wild ride for investors in local currency emerging market sovereign debt. The turmoil in global financial markets during the first quarter of the year following the rapid spread of Covid-19 as well as the sudden plunge in oil prices caused havoc in fixed income markets across the globe. Investors rushed to raise liquidity amid the uncertainty and panic, exiting positions en masse, particularly those regarded as having a hint of risk.

South African government bonds did not escape the pain, with significant sales of the asset class by foreigners, causing yields to spike and prices to move lower. This was not isolated to the South African bond market, with all emerging market local currency debt selling off in unison.

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