Newsletter | August 2025 | We Meet Again, Mr Bond

The Name is Bond, James Bond

Navigating markets in the current economic environment requires determining whether bonds are the hero or the double agent in an investor’s portfolio. Historically, bonds have been the quiet, reliable asset class offering stable return profiles when equity markets were volatile. Like a spy working for both sides, in this current environment, bonds may either ‘rescue’ a portfolio or undermine it from within. So how do we tell if bonds are the grizzled and trustworthy Daniel Craig, or the more polished but unpredictable Pierce Brosnan?

Silva: You See, Mr. Bond, the World has Changed 

Bonds and equities have typically moved in opposite directions. When equities fell, bond prices rose as yields declined, delivering stability and diversification. However, between 2022–2024, that inverse relationship changed, with both equities and bonds posting large negative drawdowns in 2022 as inflation surged and central banks hiked rates aggressively. This can be seen in the correlation chart below:

Between 2024 and 2025, this correlation has been unstable, as US Treasuries and global bonds fell in tandem with equities during inflation surprises and Fed hawkishness. Only when growth fears dominate do bonds resume their traditional “safe haven” behaviour. But with the correlation of bonds to equities at these levels, investors cannot assume bonds offer automatic protection. Correlation is also conditional on macro drivers like inflation, rate expectations, geopolitics, and statements made by President Trump.  

It’s as if agent James Bond is both wearing a tuxedo and teaming with his opponent at the same time. Duration risk is the long tail of betrayal, with long-term bond prices being sensitive to, and negatively affected by, small changes in interest rates, while inflation risk has been the spectre that never truly dies. 

Le Chiffre: it isn’t Personal, it’s Business 

Policy and geopolitical risk remain the main drivers of uncertainty, and hence volatility, in the markets. US tariff shocks on emerging market (EM) exporters create uncertainty for sovereign credit. When the US imposes tariffs on exports from EM’s like South Africa, Brazil or India, the direct and indirect economic consequences can spill over into the sovereign credit profile of those countries. 

The BRICS countries are now paying the price of being the opposite of “peace pursue” developed markets stances, with China and Brazil hit with 50% tariffs while South Africa and India have been hit with tariffs of 30% and 25% respectively. These tariff tensions and trade war risks will affect global credit spreads but the ones to feel it the most are the EMs.

Bond: Shaken, Not Stirred

Sipping martinis in a hostile environment can be likened to SA bonds; they may look calm, but volatility is ever-present. The South African Reserve Bank (SARB) has cut rates once again by 25 basis points, and they have now pivoted to targeting the bottom of the inflation band. Bond holders are currently subjected to tangible income pick-up from nominal bonds as the South African 10‑year Government Bond yield was 9.6% at the end of July 2025, coming off an 11.1% high in April this year – yields that are way above the current policy repo rate of 7.0%. 

While yields are attractive – both nominal and real – they reflect embedded risks due to fiscal uncertainty with the tariffs imposed, currency risk from the Rand, and long-end yields remaining sensitive to global volatility and inflation expectations. In all of this, tariff policy becomes the new Goldfinger, and the global bond market is trying to survive in a world of policy surprises.

M: Sometimes the Old Ways are the Best

Good fixed-income strategies work in the shadows until they save the portfolio and bonds. Despite the uncertainty, they remain a vital hedging and allocation tool for investors. Sometimes, M would call on Mr Bond to carry out a mission and, by preparedness and design, Bond would already be on it. 

Bonds in a portfolio should already be embedded as shock absorbers, dampening drawdowns, preserving capital, and funding rebalances. But some bonds carry credit risk, duration risk, or currency exposure that betray their defensive mandate. Bonds should be more than a last-minute rescue, however. Their purpose is operating behind the scenes, managing macro threats so that investment portfolios survive the next global twist.

Q: Now Pay Attention, 007

In almost every James Bond movie, Q’s signature instructions before a gadget briefing begin by asking Bond to pay attention. With so much market turmoil, perhaps there is no better time to pay attention to the details. Investors have the tools to navigate the markets, either with bonds as part of their portfolio or at least having the asset class as a consideration. 

In July 2025, the Nasdaq Index rose 4.2% for the month, the MSCI World Index gained 3.1%, and the MSCI US Index was up 4.1% in rands. In contrast, the MSCI India Index declined 3.4%, while the MSCI China Index rose by 6.6%. The broader MSCI Emerging Markets Index delivered a positive return of 3.7%. The MSCI UK Index rose 2.6% while the MSCI Europe Index was down -0.1%.

Locally, it was a positive month. Resource stocks continued their strong performance in 2025, returning 5.1% in July. Industrials rose by 1.0%, while Financials gained 1.4%. The Property sector advanced by 4.8%, and nominal bonds delivered a solid return of 2.7%, supporting the All-Share Index, which was up 2.3% for the month. The rand depreciated by 1.8% against the US dollar, closing at R18.08.

Overall, it was a strong month, highlighting the correlation between local bonds and local equity as well. But before deploying bonds, investors should understand duration, credit risk, and currency exposure while also paying attention to what is happening with regard to the other asset classes.

Disclosure

_{Satrix Investments (Pty) Ltd is an approved FSP in term of the Financial Advisory and Intermediary Services Act (FAIS). The information does not constitute advice as contemplated in FAIS. Use or rely on this information at your own risk. Consult your Financial Adviser before making an investment decision.}

_{While every effort has been made to ensure the reasonableness and accuracy of the information contained in this document (“the information”), the FSP’s, its shareholders, subsidiaries, clients, agents, officers and employees do not make any representations or warranties regarding the accuracy or suitability of the information and shall not be held responsible and disclaims all liability for any loss, liability and damage whatsoever suffered as a result of or which may be attributable, directly or indirectly, to any use of or reliance upon the information.}