Rand, bonds slide on GNU jitters in wake of budget snafu

The rand and South African bonds stumbled on Wednesday as the shambolic politics behind Budget 2025 raised the prospect of an unravelling of the Government of National Unity (GNU), a scenario that has rattled markets and investors as it heralds political and policy uncertainty in the days and weeks ahead.

"The rand is sinking due to investors' concern that the GNU, and in particular the uneasy alliance between the ANC and the DA, may break up or be altered," Shawn Duthie, an analyst with consultancy Control Risks, told Daily Maverick.

"In effect, the ANC seems to believe that if the DA won't pass the bill, then they don't deserve to govern the departments the budget funds."

As the votes were being counted in parliament, the rand maintained its downward slide against the dollar, falling to 18.76/dlr, its lowest levels since mid-January which represented a loss of almost 30 cents on its Tuesday closing levels.

The yield on the benchmark 10-year government bond surged almost 40 basis points to around 11.14%, its highest level in almost a year - pointedly in territory last seen when there was a cloud of uncertainty ahead of the May 2024 election.

"You can’t vote against the Budget and tomorrow be part of the implementation," Finance Minister Enoch Godongwana said earlier, comments that strongly suggested the DA would be left out of the GNU.

On top of this domestic political saga is US President Donald Trump's looming announcement on tariffs later on Wednesday which has roiled global markets.

"There is obviously a double whammy here with the tariff story coinciding with the South African domestic political instability," said Daniel Silke, director of the Political Futures Consultancy.

The formation of the GNU last year - months before Trump won reelection - removed a massive investment risk factor for South Africa which boosted confidence and stabilised the rand.

If the GNU unravels - primarily because of the fracas over the VAT hikes in the budget - South Africa's political risk profile for investors will take a dramatic U-turn for the worse at a time when the country is on Trump's radar screen in very worrying way.

The market mayhem ain't over folks and if the rand's slide is maintained, fresh fuel will be poured on the cooling embers of inflation, while rising bond yields will increase the cost of government borrowing.

The bottom line is buckle up: the ride ahead is going to be bumpier than a rural Free State road.

With additional reporting by Yeshiel Panchia