On the back of weaker GDP and lower than expected inflation numbers, the Monetary Policy Committee (MPC) of the Reserve Bank cut the repo rate by a further 50 basis points (bps) to 6% during the month. Since December 2008, the repo rate has now been cut a total of 600 bps. This further cut is very much on the back of the Rand that has reached its strongest levels since the end of 2007. Over the past month the Rand strengthened from R$7.36 to R$6.97, largely as a result of continued foreign purchases of local bonds. During September, foreigners bought R6.2 billion local bonds after having purchased R12.6 billion during August. The Rand strength has also been a factor of US$ weakness relative to the Euro, increasing from 1.27 to 1.37 over the month. While fears of a doubledip recession have abated, there is increased speculation that there is likely to be a further bout of quantitative easing in the US to give that economy a further shot in the arm.

In line with the foreign purchase of local bonds we have seen an increase in risk appetite as reflected in the narrowing of the emerging market bond spread from 303 to 279 bps over the month. Similarly, the South African sovereign bond spread declined from 170 to 155 bps.

The local inflation numbers were a bit of a mixed picture this past month with CPI surprising on the downside for the 7th month in a row. CPI came out at 3.5%, down from the previous month's 3.7% and better than the expected 3.6%. The PPI number, on the other hand, surprised on the upside coming out at 7.8%, up from the previous month's 7.7% and worse than the expected 7.4%. Money supply growth and credit extension have continued their slow recovery and continue to show signs of a pick-up in activity.

During September we had a flattening of the bond yield curve as longer term bonds declined by more than the shorter dated bonds. For the month the market benchmark All Bond Index had a return of 1.1%. Over the month the R157 government bond, maturing in 2015, declined by 1 bp to 7.22% and the R186, maturing in 2026, declined by 19 bps to 7.87%.

On the back of the cut in the repo rate money market rates declined further over the month; the threemonth NCD rate declined by 30 bps to 6% and the 12- month NCD rate declined by 15.5 bps to 6.375%. The money market benchmark Stefi composite had a return of 0.54% over the month.

At this stage of the economic and interest rate cycle further moves in interest rates are becoming more and more data dependant. The major determinant is likely to be the fortunes of the Rand. If it continues to strengthen as it has over the past month then there is every chance that there could be further cuts. This is not, however, our base case as we believe we are at the bottom of the inflation cycle, which should put a floor on interest rates.

The money market yield curve has steepened somewhat since last month giving a bit more compensation for the risk of investing in the longer end of the yield curve, albeit at lower levels. We certainly do not see interest rates beginning to rise for an extended period of time and will therefore remain fully invested, keeping the weighted average term of the fund as long as possible.

Following on from May's 5% fall, our market gave back a further 3% in June. These are volatile times, as halfway through the month the market was actually up 2%. Global equity markets continue to be shoved around during times of conflicting news flow and apparent uncertainty. Ultimately company earnings will determine the value of shares and subsequently market indices. We continue to believe that some company earnings are cyclically low and have the potential to improve and return to customary levels. Timing of this is always indeterminate and it can be a tortuous wait. We know that companies reinvent themselves in difficult times through top line initiatives, realignment of costs and cost cutting, supplier and debtor negotiation and corporate funding restructuring. We maintain that the delivery of this earnings recovery and growth is essential for the sustainability of a bull market recovery. We have been positioned in counters that have the largest gap between their current value and potential recovery value. As global equity markets have "lost the faith" in recent months, these more cyclical counters have become progressively more attractive. As these stocks have underperformed and our perceived upside has increased we have dispassionately increased our holdings in them, namely: MTN, Steinhoff, Nedbank, Imperial and Lonmin. We also sold our holding in Richemont and invested the proceeds into Naspers-N. Super Group, Reunert and Brait were the biggest contributors to our fund performance for the month. We also did well by not owning Naspers-N for most of the period, only picking them up at the end of the month. SABMiller and Shoprite's strong performance detracted from Mastermind as we have no exposure to these shares. I have commented on the FIFA World Cup for the last year or so and would like to make a few closing remarks. I could not be more proud to be South African than I am. Our country has done remarkably well and I would put the few negative observations into perspective of the overall success. Even on the field, Bafana Bafana, ranked 86th, drew with Mexico and beat the 9th ranked French. I have learnt to blow the vuvuzela, unfortunately I still can't diski dance, caught the train home from town at 12am with my children, had amazing conversations with South Africans and foreign visitors and incredible times with friends, family and colleagues. It is wonderful to have hope. I trust you all "felt it!" AYOBA! The ongoing concerns around the fiscal situation of a number of the European countries continue to simmer, to the extent that both locally and abroad commentators are raising the spectre of a double-dip in world growth. This is leading to risk aversion trades which is reflected in the decline of the US 10 year bond rate from 3.30% to 2.94% over the month. This is also seen in the emerging market bond spread that increased by 12 basis points (bps) to 337 bps over the same period. The South African sovereign bond spread interestingly declined from 211 to 206 bps. The Euro remained largely unchanged to the US dollar over the month at 1.22, while the Rand strengthened from R$7.73 to R$7.69. The oil price increased slightly from US$73.59 to US$ 74.77. Domestically the Reserve Bank quarterly bulletin indicated that imports had picked up and that the consumer was coming back. This was notwithstanding the fact that credit extension and money supply growth were still at very low levels. Credit extension increased slightly from -0.86% to 0.80% and money supply growth, as represented by M3, declined from 1.67% to 1.40%. The lower money supply growth number was supported by good tax receipts. The current account deficit increased from -2.9% to -4.6% on the back of an increase in imports and a decrease in exports as global growth is struggling to gain traction. On the inflation front CPI continued its declining trend coming out in line with expectations at 4.6%, down from the previous month's 4.8%. PPI surprised on the downside, coming out at 6.8%, up from the previous month's 5.5% but lower than the expected 7.1%. Its continued upward trend is still very much as a result of the low base effects from last year. The bond market yield curve steepened further over the month with the short term bond yields declining and the longer term bond yields increasing. This resulted in the market benchmark All Bond Index returning only 0.27%. While the unchanged repo rate has kept the threemonth NCD rate anchored at 6.55%, the 12-month NCD rate declined by 15 bps to 7.18% over the month. This would be supportive of the view that the repo rate is likely to remain at the current level for an extended period of time. The money market benchmark Stefi composite had a return of 0.56% over the month. There have been mixed signals coming from the economic data. On the one hand the Reserve Bank quarterly bulletin is indicating that the consumer is coming back while on the other hand the purchasing managers' index is indicating that confidence is slipping, with a reading of below 50. The majority of commentators believe that the interest rate cycle has bottomed, but that there is some risk that we could have a further cut in the repo rate. We are going to have to watch carefully what impact the global situation has on our economy. Unless the situation deteriorates markedly we are going to stick with our view that we have seen the last of the interest rate cuts. Even thought the longer dated rates have declined, the money market yield curve still remains fairly steep, which makes it attractive to invest in the longer end of the curve. We will keep the portfolio as fully invested as possible to take advantage of these higher rates as we do not believe rates are likely to start rising for an extended period of time.

The Monetary Policy Committee (MPC) of the Reserve Bank caught the market by surprise after their March meeting by announcing a 50 basis point cut in the repo rate to 6.5%. The MPC motivated the cut on the back of the improvement in inflation expectations, which had resulted from the continued appreciation of the exchange rate and greater certainty with respect to future electricity tariff increases. It was also supported by declining food prices. They mentioned that despite clear signs that the economy had emerged from the recession, the pace of the recovery was expected to remain slow and with the improved inflation environment it provided space for an additional monetary stimulus to reinforce the sustainability of the upswing without jeopardising the achievement of the inflation target. The inflation numbers that came out during the month were in line with expectations. CPI came out at 5.7%, down from the previous month's 6.2% and PPI came out at 3.5%, up from the previous month's 2.7% and slightly below the expected 3.7%. Credit extension has remained in negative territory, albeit at a slightly lower level than last month and money supply growth is still at very low levels. The Rand strengthened meaningfully over the month from a level of R$7.72 to R$7.29. The US dollar also strengthened slightly over the month against the Euro from 1.36 to 1.35. The oil price also increased further from $76.86 to $81.20 over the month. The US 10 year bond rate weakened over the period from 3.62% to 3.83%. Global risk appetite, as measured by the emerging market bond index, improved by 44 basis points (bps) over the month to 251 bps. South Africa's sovereign bond spread improved by 31 bps to 157 bps. On the back of these improved spreads the South African Government issued a US$2 billion 10 year bond at a rate of 5.59%. It was another good month for the bond market with rates declining across the yield curve. The market benchmark All Bond Index returned 2.15%. The R157 government bond, maturing in 2015, declined by 22.5 bps to 7.945% and the R186, maturing in 2026, declined by 17.5 bps to 8.805%. It was also a good month for the money market with rates declining as a result of the cut in the repo rate. The three-month NCD rate declined by 55 bps 6.55% and the 12-month NCD rate declined by 57 bps to 7.43%. The money market benchmark Stefi composite had a return of 0.61% over the month. We were as surprised as the rest of the market was that the Reserve Bank cut the repo rate. There is a lot of evidence that the economy is already recovering. We find it hard to understand the benefit of a cut so late in the cycle when it typically takes 12 to 18 months for the benefits of a reduction in interest rates to be felt by the economy. By then the economy should be well into the recovery cycle and this cut could end up being an overstimulation which in itself could put upward pressure on inflation. We are also concerned about the very low level of real interest rates which ultimately leads to a miss-allocation of resources and feeds into inflation. Our challenge is going to be to get a better grip on the response function of the Reserve Bank. Going forward we would not normally have seen interest rates being cut further, but we are going to have to see to what extent the rules of the game have changed. The money market yield curve remains fairly steep which makes it attractive to invest in the longer end of the curve. We will keep the portfolio as fully invested as possible to take advantage of these higher rates as we do not believe rates are likely to start rising for an extended period of time.

December is traditionally a very quiet month for the fixed income markets. Market participants try to get their books squared off by the 3rd week in preparation for the holiday season. This year has been no exception, particularly as the traditional December Monetary Policy Committee (MPC) meeting of the Reserve Bank was cancelled. In addition there was very little in terms of market data coming though during the month.

The inflation numbers that came out were mixed. CPI came out at 5.8%, down from last month's 5.9% and slightly better than the expected 6%. PPI came out at -1.2%, up from last month's -3.3% and slightly worse than the expected -1.8%. CPI is expected to move out of the target range over the next few months as a result of the very low base of a year ago. It is then likely to move back into the target range through to June 2010 on the back of a stronger currency. Thereafter the expected Eskom increase is likely to push it above again.

The Rand weakened over the month from a level of R$7.49 to R$7.73 as the month end approached. This should be seen against a US dollar that has strengthened against the Euro from 1.50 to 1.42. On the back of the strengthening dollar we have seen the oil price decline from $76.35 to $72.72 over the month. We have also seen deterioration in the US long bonds as the 10 year bond rate increased by 54 basis points (bps) from 3.2% to 3.74% over the period.

Global risk appetite, as measured by the emerging market bond index, improved by 25 bps over the month from to 305 bps. South Africa's sovereign bond spread performed even better improving by 47 bps to 182 bps.

The local bond market was somewhat mixed over the month. The R157 government bond, maturing in 2015, increased by 3 bps to 8.45% and the R186, maturing in 2026, declined by 6 bps to 9.075%.

With the MPC meeting being cancelled, money market rates remained largely unchanged over the month. The three-month NCD rate remained unchanged at 7.15% and the 12-month NCD rate declined by 3 bps to 8.10%.

The monetary aggregates have remained very weak and this has led some commentators to call for further cuts in interest rates. We remain of the view that we are very near to the end of the declining credit cycle and that the cuts in interest rates that we have seen over the past 12 months will start bearing fruit soon. This is supported by the Reserve Bank's composite lead indicator that confirms that the economy is well on its way to recovery. We therefore believe that the next move in interest rates will be up, but that it is unlikely to happen before the latter part of next year.

The money market yield curve remains fairly steep, which makes it attractive to invest in the longer end of the curve. We will keep the portfolio as fully invested as possible to take advantage these higher rates.