The money market had a volatile month during October, while the bond market rallied. The benchmark RSA R153 traded down to make another all time low in yield at 8.43% during the month. 12mth NCD's moved up 0.35% to peak at 7.85% before ending the month lower at 7.55%. The yield curve flattening that started in September continued into October and longer dated bonds again outperformed the short dated bonds.

Inflation continued to surprise on the downside, with September CPIX coming in unchanged from the August low of 3.7% year-on-year. Although inflation is expected to start to rise from these levels, it will still remain comfortably within the Reserve Bank's target range for the next 12 months. The benign inflation environment should continue to provide support to the bond and money markets, and we expect interest rates to be on hold for the next year. The Rand also strengthened during October, firming to around 6.10 to the US Dollar buoyed by good news on the sovereign ratings front and positive investor sentiment.

With the money and bond markets now starting to price in a further interest rate cut, the market is starting to look expensive against our expectations that bond and money markets will range trade for the remainder of the year and we will therefore continue to look for opportunities to reduce duration into strength.

Both the money market and bond curves continued to rally during September as the market remained optimistic on the prospect of further interest rate cuts, and the recent spate of lower than expected inflation data continued. The benchmark RSA R153 rallied to a historic low of 8.58%, while the money market priced in a 90% probability of another 0.50% cut in interest rates at the October Monetary Policy Committee (MPC). Both the money market and bond yield curves started to flatten, with the long end of the curve outperforming the short end. Your fund increased its bond exposure during the month and was well positioned for the rally.

We expect inflation to remain comfortably within the target band over the next year and official interest rates to remain flat, providing a stable domestic backdrop for the money and bond markets. Although the current account remains a source of some concern, we only expect this to result in a modest depreciation of the Rand. The global environment however, is more uncertain, and the risks remain that global rates rise and exert some pressure on the local bond market. As these risks balance against the positive domestic environment, we expect the bond market to range trade for the remainder of the year, while money markets are expected to remain largely stable.

The long end of the money market and the bond yield curve steepened somewhat in June, which was another volatile month for the South African bond and money markets. Long-dated cash yields and bond yields sold off 15 to 30 basis points respectively before rallying strongly in the second half of the month, with long cash ending unchanged and bond yields some 9 basis points lower than at the end of May. The fund was well positioned for the month as we lengthened the cash duration of your portfolio, locking in higher yields in the long end of the money market curve and kept the bond portion of the fund short duration.

In the near term, the outlook for the Rand remains supportive, while both local and international short term interest rates should continue to underpin the cash and bond markets. Looking further out however, the risks to the international bond markets remain a concern. Domestic fundamentals will remain largely supportive, with inflation likely to remain broadly within the target range this year and official interest rates only expected to rise next year. On balance, we continue to like long dated cash yields and will therefore keep the fund long cash duration, but will maintain a defensive bond position with the expectation that yields will move higher.

Despite a strengthening Rand, the long end of the money market curve continued to rise and steepen during May with the 12 month NCD rising 0.10% and 3 month NCDs remaining flat during the month. The market focused instead on the risks in the global environment with the long end of the cash curve pricing in more interest rate hikes further out. Bond yields continued to rise during the month with the R153 selling off 0.15%.

Going forward, we expect domestic inflation to exceed the upper end of the inflation band in response to higher oil prices and the unwind of last year's favourable base effects. However, with the market pricing in rate hikes in excess of 3.5% over the next two years, we feel that cash yields offer value in the long end of the curve. We continue to look for opportunities to buy into weakness. Risks to the international picture remain a cause for concern for the bond market. We continue to manage the fund's bond exposure defensively.

The money market curve resumed its upward move during the month of March, led by the longer end of the yield curve with 12-mth NCD's rising 0.20% and 3-mth NCD's rising 0.15% to yield 8.60% and 8% respectively. The upward move in NCD rates and steepening yield curve was driven by a market which has started to look for interest rate hikes by year end. Despite a stronger Rand and supportive international bond market the yield on the R153 sold off during March and the bond yield curve steepened slightly. During the month, we were cautious on money market rates and had reduced the funds exposure to bonds and were thus well positioned for the move.

Going forward, we continue to believe that interest rates have bottomed and are expecting a 1% hike before year-end. The market has now moved more in-line with these forecasts. However, we still remain cautious on money market and bond yields and will continue to manage the fund defensively, using any opportunities to shorten duration further into any strength.

The money market curve sold-off during the month of December as the SARB, once again surprised the market by cutting rates less than anticipated. A 0.50% cut versus a 1% market expectation. This caused the money market curve to steepen and the shorter end of the bond curve to sell off. 12mth NCD's rose 0.90% to yield 8.05%; 3mth NCD's rose 0.30% to yield 7.65% and the shorter dated R150's sold- off 0.82% during the month. The fund was reasonably well positioned for the move, remaining short bond duration and only slightly long the cash benchmark.

Going forward, we believe that there is not much room for cash rates to move lower. We are at or close to the bottom of the interest rate cycle with the market pricing in a small probability of a rate cut in February. Technically, we may see some short-term strength in the bond market.

Further out, we remain more cautious on money market and bond yields as inflation and interest rates look set to rise and we will look for opportunities to shorten the duration of the fund.