South African Bonds Generate Some of the Best Returns in Emerging Markets.

South Africa's local-currency bonds have experienced a relief rally, generating some of the highest returns among emerging-market nations. After a period of under-performance, yields on government securities reached a post-pandemic high in September, making them the worst performers in emerging markets at the time. However, since then, they have earned 6.8% in dollar terms, outperforming the average return of developing markets. The recovery was fueled by speculation that the Federal Reserve is done hiking interest rates and was further boosted by the government's reassurance that issuance of nominal bonds would not rise. Seasonal demand for bonds and the maturity of inflation-linked bonds in December are expected to sustain the rally. The high real interest rates set by the South African Reserve Bank and attractive valuations have also supported demand for the bonds. However, the rally could stall if the government is unable to raise enough borrowing from alternative sources. Despite this, the macro environment has shifted in favor of bonds, which may attract foreign investors back to South Africa's relatively high yields. [Extracted from the article]