Namibia misses bond rally

Namibia misses bond rally

Namibia was not able to benefit from a strong demand for bonds despite a favourable trading environment, attributed largely to the lack of liquidity its larger neighbour South Africa enjoys, Simonis Storm said in its fixed-income report. Despite a monetary familiarity to that of its anchor country, Namibia was not able to attract strong capital inflows, the firm said.

“Namibia continues to share South Africa’s monetary framework through the rand peg, meaning that inflation impulses, policy cycles and regional financial conditions remain closely linked. Yet, the bond markets themselves do not function in the same way,” Simonis Storm said. “South Africa trades as a liquid emerging market duration instrument whose yields are heavily influenced by international asset allocation, while Namibia trades as a domestically anchored funding market where pricing is determined primarily by institutional balance sheets and issuance needs,” it added.

South Africa was also able to benefit from improved expectations for its fiscal scope, moderate inflation and removal from the Financial Action Task Force’s (FATF) greylist, Simonis Storm said.

“The widening through 2025 unfolded largely because South Africa experienced a strong rally that Namibia structurally could not replicate. South African yields compressed as the fiscal narrative stabilised, inflation expectations moderated and the country’s removal from the FATF grey list improved accessibility for global investors,” it said.

This was further exacerbated by domestic players investing in bonds for regulatory reasons, Simonis Storm said, whereas in neighbouring South Africa, interest for bonds was driven by its attractiveness as a desired emerging market economy and ease of trading.

“At the same time, the broader global backdrop shifted in favour of emerging-market carry (EM) trades. As volatility in developed-market rates eased, international funds re-entered liquid EM bond markets in search of duration and yield, and South Africa, with one of the deepest and most tradable curves in the developing world, absorbed a large share of those flows,” Simonis Storm said.

Low turnover of bonds further affected trading depth.

“The rally was therefore as much about liquidity and positioning as about macro improvement. Namibia did not benefit from this impulse because its bond market operates under very different structural conditions. 

Trading depth is limited, turnover is low and the investor base is dominated by domestic pension funds, insurers and banks whose behaviour is largely strategic rather than tactical,” it said. Namibia therefore missing the rally was not as a consequence of weak market fundamentals, but the structure of its market, Simonis Storm said.

“At the same time, Namibia’s fiscal position required continued issuance throughout the year, and in a small market the relative scale of supply can prevent yields from falling even when the macro-environment improves. The absence of a rally in Namibia was therefore not the result of deteriorating fundamentals, but of a market structure that does not transmit global duration flows efficiently.”