Namibia’s fixed income market presents a significant and underappreciated investment opportunity in the second half of 2025, driven by structural inefficiencies and attractive yields across its sovereign bond curve, according to a comprehensive strategy report by local investment firm Simonis Storm Securities (SSS). The analysis argues that despite nearing the end of its monetary easing cycle, Namibia’s bond market offers exceptional real returns and convexity benefits largely overlooked by investors.
The Bank of Namibia (BoN), having reached a policy rate plateau of 6.75%, is anticipated to deliver one final 25 basis point cut to 6.50% in the fourth quarter. This move is expected to align with a similar final cut by the South African Reserve Bank (SARB) to 7.00%. Crucially, SSS asserts this marks a transition point where market dynamics will shift from being dominated by policy changes to being governed by term premia, inflation expectations, and the shape of the yield curve itself.
The core finding of the research is that Namibian nominal bond yields remain excessively high relative to fundamentals. Key benchmark bonds like the GC30 (yielding 8.96%), GC32 (9.54%), GC35 (11.10%), and GC50 (12.24%) deliver structurally high income. More strikingly, these translate into real yields – returns adjusted for inflation – comfortably exceeding 5% across the curve. This is based on an assumption that inflation remains contained below 4%, supported by recent disinflationary trends in transport and food costs. Such real returns are described as “exceptional” within the Emerging Market context and appear anomalous given Namibia’s monetary union with South Africa and shared macroeconomic stability.
Beyond high nominal yields, SSS highlights a deeper inefficiency: the significant underpricing of convexity, which measures a bond’s price sensitivity to interest rate movements, particularly non-parallel shifts. Their analysis demonstrates that bonds like the GC35, with a modified duration of 8.85 years and convexity of 0.82, offer substantial potential capital gains alongside coupon income. Under a scenario of 50 basis points of easing and stable inflation, the GC35 could deliver a total return close to 18% over 12 months, including reinvested coupons. Even with only 25 basis points of easing, the convexity-adjusted capital gain for GC35 is estimated near 3.5%, positioning it as a prime candidate for strategic portfolio overweighting.
The report further identifies a relative mispricing compared to South African bonds. Namibia trades at unjustifiably wide spreads against maturity-matched South African debt: GC30 trades just 1 basis point above the South African RC300, GC32 trades around 74 basis points over the R213, and GC35 offers an 80 basis point spread over the R209. SSS argues these spreads lack fundamental justification, as both sovereigns share similar credit ratings (Ba3/BB-), are engaged in fiscal consolidation, and operate within predictable inflation regimes. The persistence of these spreads is attributed to liquidity premia, institutional inertia, and market segmentation – factors SSS believes are temporary.
A specific opportunity is highlighted in Namibia’s inflation-linked bond (ILB) market. The GI36 bond currently offers a real yield of 6.75%, implying a breakeven inflation rate (the inflation level needed for it to match the return of a nominal bond) of only 4.35% compared to the nominal GC35. Given Namibia’s structural exposure to energy import costs and administered price pressures, SSS deems this breakeven level conservative. Their forward inflation model suggests a more plausible 10-year path of 4.7–5.2%, indicating the GI36 is fundamentally underpriced. Additionally, the GI36 possesses strong positive convexity, meaning its price would adjust favourably if inflation expectations were revised upwards, making it a powerful hedge against inflation surprises or shifts in market sentiment.
Based on this analysis, Simonis Storm advocates a deliberate portfolio construction strategy for investors:
Overweight the 7–12 Year Nominal Segment: Primarily using GC30 (as a duration anchor with good liquidity) and GC35 (as a high-convexity core holding).
Include Inflation Protection: Allocate to GI36 to hedge inflation risk and capture potential real yield compression.
Utilize Short-Term Bills: Hold 3–6 month T-bills (yielding around 7.7%) for flexibility during auctions or market volatility.
Consider a Convergence Trade: Execute a tactical trade going long Namibian GC32 and short South African R213 on a duration-matched basis to capitalize on the expected narrowing of the current 75 basis point spread towards 50 basis points.
SSS emphasizes the need for precise risk management, recommending that any exposure to Namibian duration be FX-hedged using cross-currency swaps or rolling NAD forwards to eliminate volatility from currency fluctuations. After accounting for typical hedge costs (1.50–1.75%), Namibian 10-year bonds still offer hedged yields above 6.0%. For interest rate risk, they suggest tactical hedging via payer swaptions (options to enter into a pay-fixed swap) on South African Rand interest rate swaps, given the lack of a liquid domestic derivatives market.
For strategic asset allocators, SSS currently recommends a significant 20–25% weighting to Namibia within a regional fixed income portfolio, with a specific allocation split of 40% to GC30, 30% to GC35, 20% to GI36, and 10% to short-term bills. This structure aims to maximize convexity capture, maintain liquidity, and embed real return potential robust across both base-case and stressed scenarios.
“The opportunity in Namibian fixed income is not only real but underappreciated,” the report concludes. “The structural inefficiencies in the curve, the relative mispricing to South African benchmarks, and the asymmetry embedded in inflation-linked securities create a rare alignment of valuation and macro environment.” SSS warns that as the BoN concludes its easing cycle and the yield curve begins to flatten in anticipation of stable rates, the window for investors to lock in these high yields, convexity benefits, and total return potential is open but narrowing. Timely execution, they argue, will be key to capturing this potential.