Select Country
Don’t have your Nedbank ID yet?
Nedbank ID single sign-on gives you full digital access to Nedbank’s banking and lifestyle products and services on the Money app or Online Banking.
Log in
Log in to Online Banking or another one of our secured services.
Get in touch
Find us
- Login & Register
- Online Banking
- Online Share Trading
- NedFleet
- Register for Nedbank ID
- About us
- Awards
- Deals
- Explore About us
- Awards
- Deals
- R4bn Tronox deal funds two 100MW solar plants
- Billions to help Redefine build green properties
- Harmony pursues green goals with R10 billion loan
- Cold solutions finance for cold storage facilities
- International Finance Corporation green bond fund
- Envusa energy deal: The way for renewable energy
- Paladin Energy senior debt funding partnership
- Renewable energy wind farm financing
- Stor-Age’s successful inaugural bond auction
- R4bn Tronox deal funds two 100MW solar plants
- Billions to help Redefine build green properties
- Harmony pursues green goals with R10 billion loan
- Cold solutions finance for cold storage facilities
- International Finance Corporation green bond fund
- Envusa energy deal: The way for renewable energy
- Paladin Energy senior debt funding partnership
- Renewable energy wind farm financing
- Stor-Age’s successful inaugural bond auction
- Women of Corporate Investment Banking
- Young Analyst Programme
- Insights
- Articles
- Conferences
- Research
- Explore Insights
- Articles
- Africa's pathway to a climate-resilient economy
- Commercial property trends 2022
- Green energy in the developing world | Nedbank CIB
- How sustainable finance creates value
- How the property sector recovered in 2023
- Two wins for sustainable finance leadership | Nedbank CIB
- FURTHER IMPACT empowerment for entrepreneurs
- There's a new buoyancy around water and sanitation
- What happens when finance meets sustainability?
- Africa’s renewable-energy projects
- Breaking barriers for energy transition in mining
- Africa's pathway to a climate-resilient economy
- Commercial property trends 2022
- Green energy in the developing world | Nedbank CIB
- How sustainable finance creates value
- How the property sector recovered in 2023
- Two wins for sustainable finance leadership | Nedbank CIB
- FURTHER IMPACT empowerment for entrepreneurs
- There's a new buoyancy around water and sanitation
- What happens when finance meets sustainability?
- Africa’s renewable-energy projects
- Breaking barriers for energy transition in mining
- Conferences
- African Mining Indaba | Nedbank CIB
- COP 28 | Nedbank CIB
- South Africa (SA) Auto Week | Nedbank CIB
- IHS Affordable Housing Conference | Nedbank CIB
- Africa Energy Forum | Nedbank CIB
- Africa Down Under Conference 2024 | Nedbank CIB
- Industry leaders talk innovation disruption | Nedbank CIB
- Market leaders in property finance | Nedbank CIB
- African Mining Indaba | Nedbank CIB
- COP 28 | Nedbank CIB
- South Africa (SA) Auto Week | Nedbank CIB
- IHS Affordable Housing Conference | Nedbank CIB
- Africa Energy Forum | Nedbank CIB
- Africa Down Under Conference 2024 | Nedbank CIB
- Industry leaders talk innovation disruption | Nedbank CIB
- Market leaders in property finance | Nedbank CIB
- Research
- Investor research
- Investor-research
- How loadshedding impacts inflation | Nedbank CIB
- Investor Research
- Investor Research
- Investor Research
- Investor Research
- Investor Research
- Investor Research
- Investor Research
- Investor Research
- SA inflation trends, insights and projections
- SA ex-ante real policy rate
- SARB: Shifting to a 25 bps hike, from 50 bps
- SARB MPC: Repo unchanged but still hawkish
- Bonds, the monetary surprise and fiscal dominance
- Upside for bond investments has compressed
- The "weak China trade" on the rand exchange rate
- Dovish inflation surprises and fiscal constraints
- The ILB curve steepens, and we expect more
- Investor Research
- Investor research
- Investor-research
- How loadshedding impacts inflation | Nedbank CIB
- Investor Research
- Investor Research
- Investor Research
- Investor Research
- Investor Research
- Investor Research
- Investor Research
- Investor Research
- SA inflation trends, insights and projections
- SA ex-ante real policy rate
- SARB: Shifting to a 25 bps hike, from 50 bps
- SARB MPC: Repo unchanged but still hawkish
- Bonds, the monetary surprise and fiscal dominance
- Upside for bond investments has compressed
- The "weak China trade" on the rand exchange rate
- Dovish inflation surprises and fiscal constraints
- The ILB curve steepens, and we expect more
- Investor Research
- Solutions
- Corporate Finance
- Financing
- Investing
- Markets
- Nedbank Business Hub
- Transacting
- Explore Solutions
- Corporate Finance
- Financing
- Investing
- Markets
- Nedbank Business Hub
- Transacting
- Sustainability
- Explore Sustainability
- Contact us
- Explore Contact us
Bonds, the monetary surprise and fiscal dominance
There is an unwritten rule that says one should favour bonds (or duration more broadly) whenever there is a dovish monetary policy surprise. Some call it “the Golden Rule”. In the case of South Africa (SA), this rule has been highly predictive over the past 20 years. However, fiscal dominance of ultra-long bonds has been diluting this rule, suggesting a structural bias for shorter-duration bonds in a scenario where monetary policy is a key input for one’s bond view.
The Golden Rule holds but has lost some shine
While SARB’s policy stance remains a key driver of bond performance relative to cash, its predictive power has waned over the past 10 years. Where the monetary policy surprise was 85% correct in predicting excess bond returns from 2013 to 2015, this is now down to only 73%. The decline in the rule’s predictability coincides with SA’s credit rating cycle.
Fiscal dominance of long-dated bonds is large and growing
We estimate the impact of fiscal policy on different maturities along the yield curve. The effect of fiscal policy, via higher debt levels, is now dominating long-dated bond yields by some margin. Our estimates suggest fiscal policy is responsible for 69% of the 30-year bond yield, up from 60% a decade ago and even lower before that. This rise in fiscal dominance would explain the decline in the influence of monetary policy on bond returns overall.
An EM peer comparison suggests SA’s fiscal influence is on the higher side but not an outlier
We estimate the impact of fiscal and monetary policy on other EM peers and focus on the 10-year bond yield. For the 10-year yield, SA’s fiscal policy seems to have a larger impact on the 10-year bond yield than other EM peers’. By extension, our estimates suggest monetary policy’s impact is smaller than EM peers’.
Ultra-long bonds seem mute to domestic monetary policy
The “pivot”, where fiscal policy starts to dominate all other factors, seems to be within the 12- to 15-year maturity bucket. The Golden Rule remains applicable, in our view, and monetary policy a key driver of bond returns, but we suggest it does not hold for the whole curve anymore.