Bond market review: SA risk premium remains

The South African bond market has faced a bumpy ride in the first half of the year, with various factors such as local and global growth concerns, interest rates, and geopolitical risks affecting its performance. Mandisa Zavala, Head of Asset Allocation at AlexForbes, shed light on the current state of the bond market and shared insights on potential opportunities and risks moving forward. Zavala acknowledged that a significant amount of risk had already been priced into the market, making it challenging for existing investors who have witnessed subdued returns. However, she also highlighted that this situation presents an opportunity for new investors entering the market, as the current environment offers a relatively high risk premium. Despite the challenges faced by South African bonds, Zavala remained optimistic about the potential for a turnaround in the second half of the year. She emphasized that while unresolved issues and ongoing volatility could persist, there are still attractive opportunities within the market. When discussing the specific areas within the bond market that offer the most value, Zavala pointed towards the mid and shorter ends of the curve. She expressed caution towards the longer end due to risks associated with factors such as rising debt levels and the energy crisis. By balancing risk and return factors and focusing on shorter durations, investors can potentially mitigate some of the volatility present in the market. Looking ahead, Zavala highlighted several key risks that investors should monitor in the coming six months. These include global economic conditions, the upcoming BRIC Summit in August, as well as uncertainties surrounding South Africa's economic growth and the impact of events like load shedding. She stressed the importance of monitoring decisions by the Federal Reserve and the South African Reserve Bank, as these could influence bond yields and currency movements. Zavala's insights underscore the need for investors to adopt a strategic approach when navigating the South African bond market amidst a challenging and volatile environment. By carefully assessing risk factors and identifying opportunities, investors can position themselves to capitalize on potential market shifts.