Namibian government bonds have shown resilience in the face of a sharp rise in global crude oil prices and higher regional interest rates. According to Simonis Storm Research, Brent crude oil prices increased by 34% during the third quarter, rising from US$72.26 per barrel at the end of June to US$97.16 by late September. This significant increase in oil prices had a notable impact on bond yields in the region.
The oil price shock pushed South African bond yields higher by between 54 and 63 basis points across the yield curve. In contrast, Namibian bonds recorded smaller increases, with the yield on the GC35 rising by 27 basis points. Simonis Storm attributed the relative resilience of Namibian bonds to narrowing yield premiums over South African equivalents and concentrated demand at government bond auctions.
The research firm noted that premiums on 11 of Namibia’s 13 government bonds narrowed during the period. This development has led Simonis Storm to recommend an investment strategy focused on medium-term bonds, describing the approach as “own the belly, avoid the tail”. The firm’s model portfolio allocates 45% to medium-term bonds in the GC32 to GC43 maturity range, with the GC35 and GC37 identified as core holdings.
In addition to medium-term bonds, Simonis Storm’s model portfolio allocates 25% to cash and liquid assets, including short-term treasury bills and JIBAR-linked floating-rate instruments, while only 5% is allocated to long-term bonds in the GC45 to GC53 range. The model portfolio has an expected 12-month return of 11.0%, compared with a current yield of 7.89% on 12-month treasury bills.
The firm cautioned against significant exposure to the long end of the government bond curve, where liquidity remains limited. The GC53 was the main exception to the broader performance of Namibian bonds, with its yield increasing by 92 basis points while its premium over South African equivalents widened by 39 basis points. This was highlighted by a recent switch auction where the GC53 received no allocation.
Looking ahead, Simonis Storm expects the Bank of Namibia and South African Reserve Bank to each implement a final 25-basis-point interest rate increase before the end of 2026, followed by another hike in early 2027. The firm said these expected increases are already reflected in forward market rates, limiting the risk to the bond curve under its base-case scenario.
However, Simonis Storm identified higher oil prices as the main external risk. If Brent crude remains at or above US$110 per barrel, central banks could be forced to implement additional rate increases. Under that adverse scenario, expected returns on core medium-term Namibian bonds would fall to between 4.8% and 5.9%, while the overall portfolio return would decline to 7.1%. Simonis Storm plans to increase the duration of its portfolio from 4.2 years to 5.4 years during the first quarter of 2027, provided crude oil prices stabilize and domestic inflation begins to decline from an expected fuel-driven peak of 6.2%.
Key points
- Namibian bonds have outperformed South African bonds despite a sharp rise in global crude oil prices and higher regional interest rates.
- Simonis Storm recommends an investment strategy focused on medium-term bonds, with 45% allocated to medium-term bonds in the GC32 to GC43 maturity range.
- The firm expects the Bank of Namibia and South African Reserve Bank to implement interest rate increases before the end of 2026 and early 2027.
