The global market was characterised by declining yields over the third quarter of the year.The drop in yields was largely driven by rate cuts implemented by central banks in response to the persistent slowdown in global economic growth. Further volatility crept into global markets toward the end of the quarter amidst ongoing US-China trade tensions, an oil price spike and heightened Brexit uncertainty. The implications of an inverted US yield curve were hotly debated while the European Central Bank (ECB) prepared to restart its asset repurchase program. The South African rand traded in a range of ZAR15.46/USD1 to ZAR13.84/USD1 over the quarter. Continued weakness in the local economy, along with moderating inflation, has given the SARB some wiggle room with repo rates. A 25-basis point cut was announced in July, while the rate was held at 6.50% in September. Against other major currencies, the rand weakened by 3.76% against the pound Sterling, 2.88% against the euro, and 6.72% against the Japanese yen.

Returns from the local bond market were heavily constrained as non-residents remained net sellers for the period under review. Yields failed to decline substantially despite a 25-basis point rate cut by the reserve bank early in the quarter. The JSE All Bond index was up a mere 0.78% for the quarter.

Most of the shift in money market yields occurred in the short to medium end of the curve for the period under review. 3-month NCD yields were down 12.5 basis points while the 6-month, 9-month and 12-month NCD yield declined 12.5,12.5 and 4 basis points respectively. The strength in the short end was prompted by the SARB’s decision to cut rates in July and further speculation of potential rate cuts before the end of the year. Our view currently does not include a rate change at the next MPC meeting but the risk of potential rate cuts has increased.

Factors that will influence the direction of rates in the coming months include currency volatility, weakening global growth and event driven risk such as the probability of a ratings downgrade.

The Fund continues to invest strategically across the money market yield curve to maximise yield while remaining within the risk parameters defined for money market funds. The Fund’s retail asset class delivered 1.90% for the quarter while the STeFI composite index was up 1.79%.