South Africa’s sovereign yield curve has tended to be very steep (and has increased a lot in the last two decades). Many factors contribute to this: the bond market has high and variable credit risk and liquidity premia (which means you should not use break evens to measure market-based inflation expectations), sticky inflation expectations embedded in bond prices and a high degree of exchange rate depreciation risk. Today’s post shows how the term structure of South Africa’s sovereign term premia has changed over time, reflecting how liquidity premia, expectations of inflation, and credit premia have changed at different horizons. SA term premia are near 5 year lows at present.
