Namibian bonds outperform South Africa amid oil price surge

Namibian government bonds have shown resilience against South African bonds despite a surge in global oil prices, according to Simonis Storm Research. The firm's latest report highlights that Brent crude oil prices jumped 34% in the third quarter, climbing from US$72.26 to US$97.16 per barrel. This oil price shock caused South African bond yields to rise by 54 to 63 basis points, but Namibian bonds saw smaller increases, with the GC35 yield rising just 27 basis points.

Simonis Storm attributed Namibian bonds' relative strength to narrowing yield premiums over South African equivalents and robust demand at government bond auctions. The research firm noted that premiums on 11 of Namibia’s 13 government bonds narrowed during the period. It recommended a 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 range, with the GC35 and GC37 as core holdings. Another 25% is allocated to cash and liquid assets, while only 5% goes to long-term bonds. The model portfolio has an expected 12-month return of 11.0%, compared to a current yield of 7.89% on 12-month treasury bills.

Simonis Storm cautioned against significant exposure to the long end of the government bond curve, where liquidity remains limited. The GC53 bond was a notable exception, with its yield increasing by 92 basis points and its premium over South African equivalents widening by 39 basis points. The firm 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, with higher oil prices posing the main external risk.