Surging DM bond yields 'a crisis in the making’

Indexed: 2026-05-18

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[00:00:13][music] It's Monday, 18 May. We got BU results this afternoon. I'm Simon Brown coming at you live and loud from the Money Web Global headquarters in Johannesburg, South Africa. on the show today. Nikuna Sunlump private wealth uh government bonds developed market government bonds yields are surging even as markets traded highs uh and earnings come in strong those yields are perhaps a worry case from AG Capital she's worried about local food inflation and suggesting we might need a rate hike next week and then we'll chat with Rim channel renumeration the wider benefits instead of just money in the bank. This podcast is brought to you by Stanlib Asset Management. Invest in more global opportunities through their partnership with JP Morgan Asset Management. Morning headlines. Money Web precious metals take a pounding over Iran war and rate jitters. This may not be the buying opportunity many had hoped for as prices could trend lower. Business day SA citrus outlook darkens amid flood and Middle East war. Early estimates indicate around 10 to 12% of the Eastern Cape crop may be affected. Morning markets, US was red on Friday. S&P 1 and a quarter down. NASDAQ 1 and a half%.

[00:01:31]East is all red. Sydney down just over a percent. Tokyo down just over a percent.

[00:01:35]Hong Kong down 1.6% and 10 cent 1.8% lower. Commodities nearly all red. Gold futures $4535.

[00:01:45]Brent is the only green $11129.

[00:01:48]Platinum, 973, palladium,45, the rand is 1675, Bitcoin is 76,800 and top 40 opening call red open 960 points or 0.9%.

[00:02:05][music] >> Money web now on the money also available on podcast.

[00:02:11]>> Trading now with Nick Kunza Sunlam Private Wealth. Nick, appreciate the the early morning time as always. Let's kick off with those developed market uh government bond yields. I mean, we got Japan 30 year at all-time highs. The UK uh is is back at what 1998 levels. These are the longer dated US 10 years at pandemic levels, which also happens to be uh 2008 crisis levels. I mean, this is a a a a crisis of of of long-term debt in developed markets.

[00:02:41][snorts] >> Morning S, as always. Thanks for having me on. A crisis of of of debt and and I also think you know the bond markets tend to I think uh maybe look at things uh not so rosy as the equity markets and this is certainly telling you that your cost of capital is rising. Uh it it you know it could be it could be the inflationary concerns. It could even be sort of stagflation concerns. But bottom line is cost of capital is rising. Uh Japan's always a good big smok and a proxy for risk and as you pointed out I mean that Japanese note 30-year hitting highest ever off the back of this. So I do think there are sort of warning signs beginning to flash about risk assets >> and I mean we were chatting a year ago in post deliberation sort of in initial response and then the walk back from Trump and you know the big number was 4.5 on on the the tenure.

[00:03:32]It's gone through that in the US. the the challenges I mean you know we've gone from those negative yields to these giant yields and these economies have got lots of debt on the balance sheet that's the difference between you know it's one thing the UK highs since 98 98 their government debt was probably half what it is now >> well I mean there's a couple of of interesting points to point out I mean I mean take take the US for example and Mr. Kevin wash now coming in new Fed chair Mr. the pal stepping down on Friday. I mean, he's come in with the pledge to shrink the balance sheet. I don't know how you can possibly do that.

[00:04:06]I mean, five over 5% now on that almost on a 10 year. I mean, they are now spend just to put that in perspective, Simon, they're spending more on servicing their debt than they do on defense spending, which is saying something in the middle of the Iran war. I mean, if this had been an emerging market, I mean, there would have been an alarm, people get nervous. I mean, this is effectively, you know, flagging that up. And then you take the other point you take the UK debt. I mean obviously there's shenanigans going on with Mr. Circus Dharma etc. But I mean this is this this was what brought down Truss last time round. It's high it's higher than that.

[00:04:38]So, you know, the world woos on capital and and and capital is becoming expensive. And I think the biggest fear if you saw that that CPI print a while ago when it, you know, when it was a week or so ago, um I mean that CPI print out the US, >> it's now becoming very concerning that that it's not just maybe a trans sort of a transitionary inflation shock that it actually might be seeping through into the broader market uh into food into etc. which I I I can't imagine why it wouldn't given where the price of energy is. Uh those are all alarm bells and again um I think we're heading into a very different space than we were in January.

[00:05:15]>> I take a point on that. A quick last question. If yields are higher, people are therefore selling bonds. Lots of talk around China selling. I mean, but I don't see where the money's going. I It's not going into gold. It I suppose it's going into equities, right? Equity markets are at highs.

[00:05:30]>> Yeah. But but narrow base, right? Sure.

[00:05:33]Sure. talking a handful handful of AI shares that are driving this market higher. And just uh heads up everyone, Wednesday's Nvidia. Yeah.

[00:05:41]>> Um you know, there are sort of a there's a real push into that AI space because about 90% of the S&P 500 shares that reported came out, you know, really good earnings, but they're not on 52- week highs. It's a handful that are pushing this market, and that's a concern. Yeah, I also I also agree with you, S. I don't see where this money is going. you know, typically maybe you expect it to flow like re like recently into gold into other sectors. I don't know where it's going. Uh I mean I look at what Turkey sold off their their sort of uh gold reserves and they went into defense spending apparently into sort of drones and the like. So perhaps uh perhaps Europe is is shoring up their defense sector. I don't know. Uh but yeah, again I just you get the sense that if you had this if you had a portfolio that that stayed exactly the same for the last three four months before the war I think you need to look at it now because I don't think things are going back to the way they were in January.

[00:06:31]>> I I agree 100% on that thing and and this is going to be a long and and and difficult round to leave it there. Nuna Sunlam Private Wealth always appreciate the early morning time. Let your money benefit from experience with Stanlib Asset Management. Find out about Stanlib Global Select Fund which follows an investment discipline that has delivered results for three decades [music] >> money web now on the money >> chatting now with Casey market strategist at AG Capital. Casey, appreciate the early morning time. El Nino, which is the uh bad of the the the the weather formations. This typically brings drought or at least droughtlike conditions. A recent note, you say there's probably a greater than 70% chance that we will see on Nino forming by late 2026. Not good news for farmers or uh a farm produce generally.

[00:07:26]>> Ah good morning Simon and yes unfortunately it's just adding another layer sort of of risk onto the horizon at the moment. I think we spent a lot of time, you know, across the markets obviously, um, you know, having the oil price as a driving concern, but this is another issue going up that I think people are not quite paying enough attention to >> and and I take your point on that. I mean, you know, and it's a little way off maybe end of 2026, although truthfully, we're what we're midway through May. It's not that far anymore.

[00:07:52]It's going to you mentioned, for example, wheat, which is, you know, we we we've got a recent reports wheat plantings are at at at 11-year lows. If we then couple that with this I mean we are we are seeing a a crunch coming and this will see prices higher and directly onto onto the consumer's pocket.

[00:08:10]>> No 100%. You know wheat in particular is something that we call sort of the structural canary almost. So South Africa actually only produces around 50% of our own domestic wheat requirements.

[00:08:20]The rest is actually imported.

[00:08:22]>> So we actually trade at import parity regardless of what our local harvest outcomes are. And you know on that note our wheat plantings have just actually hit 11-year low and I think that's just a reflection of rising input costs worsening structural fragility. So it's those types of um you know shifts and concerns that start to permeate through the the inflationary basket for us. And >> you make a point there. I mean it's wheat planting. So this is wheat that will be sort of hitting our tables later in the year. In the immediate in the near term supply does remain strong. I mean it it's good for now. It is the end of the year and and into next that that that is the concern.

[00:08:56]>> Yes. Yeah. Know and I think that's important to highlight. The risk isn't sitting now immediately. It's what we're looking at within the next 6 months to even sort of a year. I mean right now if we look at where we are today overall food CPI is actually quite subdued. It's sitting I think the latest print at 3.6%. This has been supported by strong harvests and a favorable base here in South Africa. Our maze harvest for example has just been revised up to a record I think it's 16.8 8 million tons.

[00:09:22]So all of that together keeps downward pressure on things like sephix prices and across the board. But what we say is that that calm is more on on sort of borrowed time and after two consecutive Lenina seasons which is your higher than expected rainfall, we're starting to see this weather cycle turning and that's where the concerns come in as you mentioned towards the end of the year going into the beginning of 2027.

[00:09:43]>> And of course what we've also got is an energy crisis. I mean there's two components to it. One is the fertilizer.

[00:09:49]A lot of ura coming through or not coming through the straight of horses at this point. That is a large part of farmer input. And then of course diesel uh which is another large part. I mean those collectively are probably over over 50% of of of the farmer's input costs and both of those are at in in I was going to say record levels but certainly very high levels and hurting uh farmers. They're going to do their best to try and pass it through to us.

[00:10:14]>> No 100%. I'd say you know those input costs are really sort of amplifying the the risk at the moment. You mentioned fertilizer I think it's around 35% of say grain farmers input costs diesel 20 to 30% of agricultural costs you know across the sector and not to forget that about 80% of our grain is actually transported by road in this country.

[00:10:33]Yeah.

[00:10:33]>> So you really see that that fuel is deeply embedded throughout the sort of food value chain. And then you know I've spoken a lot about sort of crop products and that but think about your protein products like beef. They effectively derived from grain input. So that sort of just amplifies the pass through from grain price shocks into our broad inflationary basket. So you see that farmers are increasingly sort of becoming under strain. And then if you think of more sort of recent localized risk sitting here in the Western Cape where we've had you know floods running through and into the Eastern Cape. So it just keeps layering on at that risk level.

[00:11:05]>> So then MPC meeting next week and you made a an article where you make a a I have to say unfortunately a compelling case uh for an interest rate increase next week for a couple of reasons. One preemptive but also you know this is our first sort of crisis with in in our new 3% inflation targeting world. Um and I mean almost certainly we're going to get above that 4% and and and and the Reserve Bank needs to hold on to their credibility. No, 100%. And I think that's key. Like listen, I'm the last person that wants to see hike myself and our economy can can afford it from that sense. But as you just mentioned, we've got a this is probably the first real stress test that we've actually seen now for this cent. It's not yet been stress stress test.

[00:11:48]>> So it's almost as if um you know the case is being that a smaller sort of more preemptive hike now might just save us a a bit of pain down the line. Almost considered a sort of an insurance move.

[00:11:58]Yeah, I take your point and your logic is sound, but I'm with you. We don't want one, but uh often what we don't want is often not what we get. We'll leave it there. Casey's break market strategist AG Capital. Appreciate the early morning time. And that's our poll today. LinkedIn and Twitter. Rate hack next street from the Saab to keep ahead of the curve on rates. Not a nice idea, but perhaps the right move. Have your vote, have your say. LinkedIn and Twitter. Let your money weather the storms for Stanlib Asset Management.

[00:12:25]Invest in the Stanlib Global Select Fund, a diversified all-weather equity portfolio submanaged by JP Morgan Asset Management >> Money Web. Now [music] on the money, I'm chatting with Lindy Wishesu. She is MD of REM channel. Lindy, we appreciate the time today. Your latest uh salary wage movement survey showing average increases of 5.43% in salaries. That's not a bad number on the surface. It certainly is ahead of inflation. Um, and good for people who have employment in South Africa.

[00:13:01]>> Absolutely. We agree to that and that is a very good indication that employers are still funding salaries. They're putting budgets aside. They are looking at inflation and at this point to your point the increases that we are seeing are a real wage uh growth which is positive. However, what we are also noting is that a lot of employees are under financial pressure. So although this is a positive trend, people are still struggling financially.

[00:13:28]>> That's a great point. I mean 5.3 is a good number. We could say inflation is somewhere around the 3%. But that doesn't necessarily mean it isn't tough out there. I mean post the the you know we've got the if nothing else the fuel price hitting us at the moment uh last month and this it is still tough being a South African wage earner in this economy.

[00:13:47]>> Absolutely tough. And I must say that um Simon this data comes even before the impact of these increases that we have seen come through as a result of the Middle East um impact. We are going to be doing another survey that will take that into uh consideration. So the financial pressures are not only hitting employees but we believe that they will start showing in the way that um companies are able to um afford such increases in future.

[00:14:14]>> Of course I hadn't thought of that side of the equation as well. What we're also seeing and and you talk around this in the survey where employees are sort of rethinking total reward, total package um and you know soft loans, cash advantages perhaps even maybe maternity leave and the like becoming more selective is is this part of that I don't know to me it feels like maybe a bit of pulling back.

[00:14:36]>> Absolutely. So this is the first time that we are actually seeing an appreciation of the full package not only the cash salary aspect but also the benefits aspect. In fact, our survey, we asked employees what of the benefits that they get as part of their package they value the most. Health and related benefits came up. Cops leave benefits, disability, group life cover, retirement benefits a lot more appreciated and so on. But what we also seeing exactly as I said just now Simon is the cost pressures are also felt by employers and therefore we are seeing a lot of employers redesign benefit packages taking into consideration what they can afford. So, as you've just mentioned, we have seen a decline in the number of employers that fully pay 4 month maternity leave. And we believe that this is following the constitutional court ruling that requires now that parents or birthing parents actually share the 4 months and 10 days of maternity leave. But obviously, the legislation doesn't require that that be paid because there's UIF that should then fund that period. So what employers who were discretionary using pay for that period are looking at now is the cost that that um implic that that that ruling will come with given that more employees will now be eligible for that parental leave that has now become um a right for employees and therefore they are like um only 41.7% of organizations that are willing to continue paying at a full for that period.

[00:16:15]>> I hadn't even thought of that. Of course, it makes perfect sense. And what we see almost is a I mean there must be a bit of I don't know a bit of tension sort of a holistic view and I get the the benefits of it. And I take your point around health and leave uh being an important part of the the overall package. The tension of course is you know rans and cents in in the pocket is is also hugely important and and it leaves employees in a in a in a bit of a tough space and and I imagine employers as well because they want happy staff but it it's a tough line to walk.

[00:16:46]>> Absolutely tough and that's why cost pressures from both parties being the employer as well as employee are are influencing the review of uh benefit packages. What we are saying though is we should just make sure that employers are taking into consideration what it is that will actually engage stuff so that people are still seeing the value proposition as competitive as fair and ultimately as helping address their needs because financial wellness is an important aspect of a productive and engaged employee.

[00:17:20]>> That's and at the core of it is that the point you just made there. It is around addressing needs and something that just occurs to me now an example you know we mentioned the fuel prices you know perhaps a little bit of work from home uh with these wild fuel prices take some pressure off the wallet at the core of this there's a cost center there's an expense but it comes back to those needs >> absolutely and what we have seen unfortunately is a lot of organizations that have called people back you would remember that post or during co or even just after postco a lot of organizations adopt hybrid models that were a little bit more flexible that we are seeing of late. What we've seen in this survey is companies that are offering hybrid models have reduced from 86% to 78% and companies that are now mandating 3 days in office have also reduced or rather increased um in this case. So they have increased from 41% to 67% meaning that hybrid is a little bit more structured.

[00:18:19]that then means people have to spend a lot more money traveling into the office in order to meet these requirements. So it will be interesting because I think with the petrol price having increased so dramatically this is going to be something that a lot of employees when they look at the value proposition will consider because those that have more flexibility and therefore don't have to spend so much money on transport will probably consider a value proposition that's more flexible as more meaningful um given the cost of fuel and travel.

[00:18:53]>> Yeah, it's about that value. about those needs and and and maybe there are some easy wins there but we'll leave it there listen MD REM channel appreciate the time Lindy [music] and that's it for today I was chatting with Puja Tenny on Friday from Perpetual Investment Managers Jerome Pal's last day as Fed chair to be clear he is still on the committee on the FOMC we asked you what you thought history how history will view pile it was fairly evenly split between saying a really good Fed mixed bag and I think that's probably fair. I mean, as we said, inflation's been above that target now for what, 5 years? Uh, he's only chair for eight.

[00:19:33]Uh, have your vote, have your say.

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