South African bonds/swaps have weakened more than US/Bund moves would justify

South African bonds and swaps have sold off significantly over the past month. The weakeness is more than US/Bund moves would justify. The curve has bear steepened significantly with the 2s10s IRS spread 30bp steeper since the start of May. 

A large part, but not all of this, is down to US rates as the spread of 10y rates over US 10y rates has increased 20-30bp. The historical beta of SA rates to US rates implies this move is on the high side of typical SA sensitivity. Interestingly, this weakness has occurred with very little selling from foreign investors and continued interest in bond auctions.

"In our view, the SARB meeting in May where two voters called for a hike may also have added to concerns about a policy misstep that would impact growth sharply. At face value, an upfront +100bp repo rate shock could lower GDP by 0.5ppt up to two years after the event. Our VAR simulation shows a 100bp repo rate shock only really impacts the economy negatively about four quarters after the event, with a cumulative 0.5ppt subtraction by quarter eight." says BofA Merrill Lynch