PANDU SHADUKA
Bonds had a stellar 2025, returning 16.38% in 2025, the second strongest year the market has recorded, behind 17.4% in 2023. The two years are close in the index, but the drivers are entirely different.
In 2023, returns were domestically driven. Namibia moved into a primary surplus of 2.9% of GDP against an overall budget deficit of 2.4% of GDP, real growth recorded 4.2%, and the debt ratio was expected to move below 60% over the MTEF. Investors were paid for a domestic debt backdrop that was improving.
2025 moved the other way on every one of those measures. The overall deficit widened to 6.6% of GDP alongside a return to a primary budget deficit, growth slowed to 1.7%, and the domestic funding requirement recorded N$26.3 billion.
The market still returned 16.38%, insulated by a 152 basis points (bps) rally across South African Government Bonds (SAGBs) driven by a strong foreign institutional bid.
Namibian weighted average spreads widened to 104bps at the end of 2025 (23bps at the end of 2024). The benchmark leg carried the year while the spread leg detracted from it. To a large extent, 2025 was an imported return.
Currently, the global backdrop is not constructive, with higher inflation expectations, a weakening global growth outlook and rates pointed upwards.
SAGB benchmarks have weakened accordingly, and Namibian spreads have moved in the same direction, now at about 150bps, marked by an increased domestic funding requirement and still weaker domestic conditions.
Both sets of the pricing arithmetic are adding pressure at the same time.
Coupons have effectively carried the entire Year to Date (YTD)return across the curve. Benchmark and spread contributions are both negative from the GC32 outward, and the spread contribution weakens progressively down the curve.
The short end has held most of its carry, with the GC27 and GC29 up about 5.1% and 7.8%, respectively, while the GC28 has kept a positive spread contribution.
From the GC45 onwards, investors are paying a portion of their coupon for weaker spreads. Outcomes thus far support our short-end bias from the beginning of 2025, maintained through the mid-year update.
A potential Final Investment Decision (FID) has placed some restraint on absolute yields. TotalEnergies is still targeting a Venus decision by late 2026, with fiscal terms still under negotiation, which may see the decision slip to 2027.
Therefore, long end yields are holding a position on an outcome that has already slipped once.
The mid-year budget review in Oct is the next domestic catalyst, and it is unlikely to show a materially lower funding requirement – the opposite may be likely.
A delay to FID would leave the local market contending with a weak fiscal and macro backdrop, global strain, and an extended gap to any significant tailwind. – Cirrus
