(Bloomberg) -- Fluctuations in South Africa’s local bond markets have opened up a split among investors. 

Goldman Sachs sees the nation’s high yields and expectations of disinflation as attractive, while EM debt-focused hedge fund Promeritum Investment Management said it was betting on the bonds due to a fiscal rule that will help anchor South Africa’s public finances.

JPMorgan and UBS Asset Management appear more cautious. Upcoming general elections along with uncertainty over the timing of interest-rate cuts in the US and South Africa have persuaded them to stay on the sidelines for now.

February’s bond performance seems to favor caution among foreign investors. Local currency bonds saw a 4.3% loss in dollar terms, versus the 0.2% return by emerging-market peers.

Foreign investors sold 15.5 billion rand worth of South African bonds during this period based on settled trades data reported by the JSE Ltd.

Forward-rate agreements indicate a shift in sentiment towards when the first rate cut in South Africa may come, with 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 stood at 5.3% in January.

More Room For Yields to Rise

Manik Narain, head of EM Strategy at UBS, advises investors to “await better levels to buy local debt, FX hedged.” He recommends awaiting 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 observed at 9%, while the 2030 bonds stood at 10.2% as of 1:40 p.m. in Johannesburg.

Meanwhile, strategists at JPMorgan took profit on their overweight position in South Africa’s local-currency bonds after the nation’s budget presentation.

--With assistance from Selcuk Gokoluk.

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