Over the quarter money market yields fell as the market discounted a higher probability of an interest rate cut over the next twelve months. The yield differentials between three month and twelve month paper decreasing significantly over the past quarter limiting money markets ability to enhance their yield though holding longer dated paper. The past quarter the funds exposure to the top three banks has increased and its exposure to corporate paper has decreased.

Over the first quarter of 2012 money market yields rose as the market discounted a higher probability of an interest rate hike over the next twelve months. With yield differentials between three month and six month paper increasing, money markets can enhance their yield through holding longer dated paper and corporate paper. The fund's duration and exposure to corporate paper is close to the maximum and we will continue with this strategy given current economic conditions.

From October 2011 to January 2012 the market expectation for three-month interest rates one year from now has gone from 5.30% to 5.90%. A rising yield curve supports money market rates more than call rates as money market funds can hold instruments with a maturity of up to 1 year. We have increased the funds corporate bond exposure with 7-month duration corporate bonds that yield well over 6%. The fund is well positioned to outperform cash over the next year while minimising duration risk.