South African benchmark bond yields fell to the lowest on record after S&P Global Ratings raised the country’s credit rating for the first time in nearly two decades.

The ratings company lifted its assessment of South Africa’s debt to BB, two steps below investment grade, citing the potential for further improvement in fiscal metrics following last week’s budget update. It retained its positive outlook, indicating that another move higher could be on the cards.

Yields on rand-denominated government bonds fell across the curve with those on notes due 2035 declining five basis points to 8.60% by 1:26 p.m. in Johannesburg, the lowest since the securities were issued in 2015. The rand rose 0.2% to 17.06 per dollar.

“South African assets are riding a wave of positive news with the budget and the upgrade,” said Anders Faergemann, a portfolio manager at PineBridge Investments. “We don’t see a catalyst for the inflows to reverse, but we expect gains from here to be more measured as the market has adjusted to the good news.”

Expectations that the South African Reserve Bank will cut interest rates when policy makers meet on Thursday are adding impetus to the rally. The median forecast in a Bloomberg survey of economists is for a reduction of 25 basis points in the repo rate to 6.75%, while forward-rate agreements are pricing in about a 72% probability of a cut of that magnitude.

Yet further bond gains would depend on slowing inflation, according to Faergemann. Data Wednesday may show annual inflation accelerated to 3.7% in October, from 3.4% the previous month. The SARB’s target is 3%, with a tolerance band of 1 percentage point either side of that.

“Lowering the central bank’s inflation target has provided a strong impetus for readjusting yields lower, yet we would need inflation to surprise to the downside to provide next leg lower in yields,” said Faergemann.

Government bonds will get further support from reinvestment of maturing debt, according to Michael Grobler, a fixed-income strategist at Ashburton Fund Managers Ltd. A government bond that matures in December could inject as much as R90-billion into the market.

Grobler sees the 10-year yield falling as low as 8.5% by year-end, with only four government bond auctions left in 2025 and the amount of debt offered at the sales cut to R3-billion, from R3.75-billion.

“It’s been an insane rally and could potentially still continue,” said Michelle Wohlberg, a fixed-income analyst at Rand Merchant Bank in Johannesburg. With coupon payments and redemptions due in December and bond auctions ending, “demand might outweigh supply,” she said.