Rebound in South African Bonds Pays Off for Van Eck

Van Eck Associates Corporation began purchasing South African bonds during the largest selloff on record and is now reaping the rewards, delivering a return triple that of the average emerging-market debt.

The New York-based firm, which manages approximately $225 billion in assets, held no South African bonds at the start of the Iran war. A year-long rally had left the bonds steeply valued and positioned as overcrowded, according to David Austerweil, a deputy portfolio manager for emerging-market fixed income. On March 16, Van Eck began acquiring the debt.

Yields on government rand bonds had surged more than 100 basis points as the conflict drove oil prices higher, igniting inflation concerns in energy-importing nations including South Africa. Van Eck calculated that these worries would subside once the war ended.

"We viewed this as an attractive opportunity to rebuild a long South African government bonds position," Austerweil said. "We did not view the war as derailing South Africa's economic recovery, and we believed that since other investors shared this view, South African government bonds would be one of the first markets to recover."

The strategy has proven successful. Since March 16, when yields hit a five-month high, South African government debt has returned 6.3% in dollar terms, outperformed only by Hungary, Brazil, and Colombia among major emerging markets. The average return for developing-nation local-currency bonds over the same period was 2.3%.

Foreign investors had sold a net R56 billion ($3.4 billion) of South African bonds in March, the largest monthly outflow since Bloomberg began compiling the data three decades ago. However, they are now returning: since the start of April, the market has seen R13.5 billion in net inflows, according to JSE data.

"It was remarkable and shows everyone was really just waiting for the all-clear to repurchase South African government bonds," Austerweil said.

Van Eck identified the most value at the long end of the yield curve, purchasing bonds maturing in 2037, 2040, and 2044. According to the accompanying data table, all three bonds have outperformed since March 16:

- SA 2037: 7.2% total return (USD)

- SA 2040: 6.5% total return (USD)

- SA 2044: 6.4% total return (USD)

For comparison, South Africa's overall bond return was 6.3%, while the emerging-market average stood at 2.3%.

Van Eck sees further upside for South African bonds, particularly relative to global fixed-income markets. The firm continued building its holdings, reaching its desired allocation level on April 8, Austerweil said.

The bonds "remain attractive especially on a relative basis, especially versus global fixed income, even if they don't look as cheap versus recent history," he said. "The fundamental story continues to improve, and we think that will continue to support asset prices."

Market Sentiment:

The sentiment is positive and increasingly confident, reflecting a successful tactical trade by a major institutional investor. Van Eck's willingness to buy during peak panic—when foreign outflows hit a three-decade record—demonstrates conviction in South Africa's fundamental recovery story. The 6.3% dollar return versus 2.3% EM average validates the thesis that the war-induced selloff was an overreaction rather than a structural repricing. The return of foreign inflows since April (R13.5 billion) confirms that other investors share this view. Van Eck's focus on long-dated bonds (2037-2044) highlights confidence in South Africa's long-term fiscal trajectory and inflation outlook. The firm's continued accumulation through April 8 suggests the trade has room to run. For the broader market, this endorsement from a $225 billion asset manager may encourage other foreign investors to rebuild positions. The key risks remain geopolitical, but Van Eck's assessment that the war would not derail South Africa's recovery has so far proven accurate. The bond market's resilience and the rapid return of foreign capital underscore South Africa's improved standing among emerging-market investors, driven by fiscal consolidation, a stable coalition government, and attractive real yields.

Disclaimer:
This content has been generated using AI technology and is intended for informational purposes only. While efforts have been made to ensure accuracy and relevance, this text should not be considered professional advice or an official statement. Always verify information from authoritative sources before making any decisions. This is not financial advice.