The problem with a 12% yield
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        The problem with a 12% yield

  Allan Gray Unit Trust Management   Q2 of 2024 | 11 months ago

The notion of a government bond trading at a 12% yield can sound very appealing, but it poses several issues. The first is for the bond investor. To own a government bond at a 12% yield does not mean one is earning 12% per annum. On the contrary, while the South African government 20-year bond has traded at an average yield of 12.1% this year, the total return for a holder of this bond over that period has in fact been marginally negative. The reason for this is that while this bond started the year at 11.5%, it last traded at 13%. Put simply, one has been taking capital price knocks along the way, which eat away at one’s return as the bond’s market value is made cheaper. Another way to think about this, as put forward by South African Reserve Bank Governor Lesetja Kganyago at the September Monetary Policy Committee meeting, is that bond investors are essentially asking for more butter and jam to spread on the proverbial South African bread. The yields are rising.


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Did You Know ?

Asset manager, Personal Trust was founded in 1980 by duo of John le Roux and Andy Calmeyer.

Simon Hudson and Wiston Floquet founded in 2001 Flagship Asset Management.

With more or less than 10 unit trusts , asset manager Allan Gray is home to 3 funds featuring in our Top 10 Heavyweights by fund size in years of 2020s.

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