South Africa Rand Bonds Pit Goldman Sachs View Against JPMorgan
(Bloomberg) -- A February selloff in South Africa’s local bond markets has opened up a split among major investment banks about where they’re headed next.
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Goldman Sachs says they’re attractive on high yields and expectations of disinflation, while the emerging market debt-focused hedge fund Promeritum Investment Management said it was betting on them due to a fiscal rule that will help anchor South Africa’s public finances.
JPMorgan Chase & Co. and UBS Asset Management, on the other hand, are cautious. They say upcoming general elections along with uncertainty over the timing of interest-rate cuts in the US and South Africa have persuaded them to stay away for now.
The nation’s local-currency bonds lost 4.3% in dollar terms in February, compared with a 0.2% return for emerging-market peers. Foreign investors sold 15.5 billion rand worth of bonds during the period, according to settled trades data reported by the JSE Ltd.
Manik Narain, head of EM Strategy at UBS, advised investors to “await better levels to buy local debt, FX hedged.” He recommended waiting for a 9.25% yield on rand debt due in 2026 and 10.5% on securities maturing in the 2030s. Yields on the 2026 bonds were at 9%, while the 2030 bonds were at 10.2% as of 1:40 p.m. in Johannesburg.
Strategists at JPMorgan said they took profit on their overweight position in South Africa’s local-currency bonds after the nation’s budget presentation earlier in the month.
Forward-rate agreements indicate investors are pushing back their predictions for a first rate cut in South Africa, pricing a 24% probability of a quarter-point easing in May, down from the previous 100% conviction at the start of February.
Governor Lesetja Kganyago has reiterated the central bank’s preference for inflation to settle closer to the midpoint of 4.5% before considering rate cuts. Inflation was 5.3% in January.
--With assistance from Selcuk Gokoluk.
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