The sell-off in South African markets on Thursday was probably a sign of things to come. The yields on 10-year government bonds rose more than 100bp, to leave them above 10% for the first time since 2008. That added to a sharp sell-off of the rand to over 15/$, its weakest ever rate against the greenback.

"The latest turmoil was triggered by the President's shock decision on Wednesday to replace the Finance Minister, who had been seen as an advocate of fiscal discipline. This will add to a sense that the ANC lacks the appetite to deal with South Africa's poor fiscal position", says Capital Research in a research note.

However, the key points are that the dire fiscal position, coupled with high inflation and a fragile balance of payments position, all point to a further depreciation of the rand against the dollar in 2016/17.

The bond market may have overreacted - indeed FRAs now price rate hikes all the way to 9% by end-2017 (from 6.25% currently), which seems highly unlikely to us. Nonetheless, weak risk appetite is likely to ensure that bonds continue to perform poorly.