The All Bond Index had a better fourth quarter, returning 2.87%. The respective index sector returns were: 1-3 year 1.37%, 3-7 year 1.06%, 7-12 year 2.32% and 12+ years 4.08%. Fourth quarter sector returns indicate a reversal of the yield curve steepening evident over the third quarter. For the full year the All Bond Index returned 8.40%.

Inflation-linked bonds returned 5.09% over the quarter, while cash earned 0.98%. Q4 was an eventful one with a number of risk events, both scheduled and not. On the scheduled side, local government elections recorded historically low voter turnouts with voters also shifting further away from the ruling party, resulting in the necessity for political coalitions in many of the provinces. The new finance minister, Enoch Godongwana, delivered his Medium-term Budget Policy Statement, which was generally well received by the market.
November saw the Monetary Policy Committee hike the repo rate by 25 basis points (bps) in a three-two vote split.

This begins a cycle of what should be a moderately paced return to positive real rates over the next two years. The hike was generally expected, however, short-term rates had not been discounting this entirely, as evidenced by the three-month Jibar rate moving about 20 bps higher after the hike. Treasury bills continue to trade at higher yields than domestic bank deposits.

The MPC’s projection model (which is only indicative) suggests further hikes of 135 bps in 2022 and another 119 bps in 2023 to maintain headline CPI at their target level. The MPC forecast for headline CPI is 4.30% for 2022 and 4.60% for 2023. The South African sovereign rating was unchanged at the end of 2021, however, Fitch revised their outlook from negative to stable.

The US Federal Reserve Bank scaled back (tapered) their asset purchases by USD 15 billion per month in November and doubled this to a monthly USD 30 billion
less from December. Minutes of the December meeting show that the committee has increased concerns around inflation and could hike policy rates sooner than
prior indications. Rate hikes in the US could begin as soon as the first quarter of 2022.
The rand was extremely volatile over the quarter, ranging from a strong point of 14.35 and ending the year closer to 16.00 per dollar.

Global and domestic economies were tentatively returning to normal activity in Q4 before a new COVID-19 variant was discovered by SA scientists, leading to erratic market and government reactions. The SA credit market was stable over the quarter with spreads in most cases remaining flat. There are indications that general spread tightening is slowing down