Despite political tensions and global tariff threats, South Africa's bond markets continue to attract investor interest, with domestic reforms and a positive S&P outlook offering hope.

Investors have flooded South Africa's domestic bond markets with cash despite political differences, betting that the country can maintain its reforms. Threats from tariffs and the potential for a global economic recession, however, are real.

The most developed country in Africa relies on assistance from foreign investors to control its debt load and borrowing rates since it has ongoing structural problems, such as unstable electricity and governance problems that have previously put a strain on its resources.

According to Thierry Larose, portfolio manager at Vontobel Asset Management, which owns domestic government bonds, they see recent changes in U.S. trade policies as a major risk to the outlook for GDP and inflation. They believe that the only significant tailwind for local assets is the declining value of the US dollar.

So far, domestic bonds have maintained investor interest. Non-resident ownership of local currency bonds increased from January to March to 25%, the highest level since October, according to Treasury data. In contrast to outflows in Asia and a more mixed picture in emerging Europe and Latin America, the country attracted $2.8 billion in fixed income inflows between December and March, according to data from the Institute of International Finance.

According to Andrew Matheny, managing director of economics research at Goldman Sachs International, South Africa has historically had a higher level of economic integration with the rest of the globe and significant foreign ownership, which has helped to explain the country's comparatively high beta to the global economic cycle.