Duetsche Bullish on SA Bonds Pre-Budget

Deutsche on SA Bonds:

• market has overshot relative to fundamentals and the more positive budget - which was well priced in by early February, is currently not priced in anymore
• Deutsche turns overweight from neutral on South Africa's local-currency bonds, citing attractive risk-reward for a more bullish bias into the budget
• Analysts find most value in 10- and 20-year bonds; 2040 notes the preferred bond among longer tenors, with a target of 10.6% for the yield by end-June; 10-year bond yield target at 9.30%
• Given our view of potential lower supply at the weekly auctions, we still recommend investors to keep longer duration bonds in their portfolio, to position for term-premium compression
• In rates, Deutsche keeps 1Y1Y IRS receivers and remains on the sidelines in longer tenors in IRS, given more attractive valuation in bonds