BRIAN KANTOR: At the crossroads of interest rates, inflation and exchange rates
All of the SA bond yields are connected and elevated by expectations of rand weakness
10 May 2024 - 00:00
Lenders demand compensation for expected inflation through higher interest rates, and borrowers are willing to pay more when higher prices are expected to erode their real borrowing costs. Interest rates, after inflation, therefore reveal the real rewards for saving and the real cost of issuing debt.
Real interest rates in SA have remained elevated, even as inflation has receded. Since 2000 the real income from owning an SA 10-year bond has averaged 3.7% a year, while a US treasury has offered on average less than 1%. The current SA-US 10-year real yield gap is a large six percentage points...
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