Market and portfolio review
Money market yields moved sharply lower during the third quarter, driven by the long end of the yield curve. The one-year area fell over 50 basis points whilst the three-month area remained unchanged, causing the yield curve to flatten.

The quarter was characterised by exceptionally volatile markets. Risk aversion returned with a vengeance as the market become concerned about European debt woes and a global slowdown. US Federal Reserve Chairman Ben Bernanke announced that interest rates were on hold until mid 2013 and in South Africa, the Reserve Bank indicated that it would react to any signs of a global slowdown. This caused the market to price in a further rate cut and to push the timing of the first expected rate hike out to 2013. The portfolio was well positioned for the move.

Portfolio activity
We took advantage of a steep yield curve and added a small amount of exposure in the long end of the curve, as the probability of a further rate cut increased. We were thus well positioned for the move lower. After the market had rallied we remained cautious, mainly adding exposure in the shorter end of the curve. We also selectively added one-year bank floating-rate paper.

Portfolio positioning
The extent of currency weakness causes significant upside risks to inflation. Global developments are likely to be the main drivers of sentiment. We expect volatility to continue as central banks and the market grapple with the combination of low growth and higher inflation. Our central view remains for rates to stay on hold for longer, but the possibility of a further interest rate cut has risen significantly.

Given the increasing risks and the fact that the market is already pricing in a 50% probability of a further rate cut, we prefer to remain cautious for now. However, we will be on the lookout for opportunities to take advantage of a steeper yield curve.

Market and portfolio review
Money market yields were broadly unchanged during the second quarter. The two-year area of the yield curve moved lower, but the shorter end remained flat. Risk aversion has returned to global markets, caused by debt problems in the euro zone.

Domestic inflation surprised on the upside with food inflation being the primary driver, but we expect inflation to stay within the 3% to 6% target band. The South African Reserve Bank seems to be leaning towards holding rates for longer, with the first hike being priced in for year-end. Growth in manufacturing production continues at a sluggish pace, with weak car production numbers probably linked to Japan-related supply disruptions. The manufacturing numbers will cause a drag on GDP figures. Globally, growth remains disappointing.

Portfolio activity
We continued to add exposure in the shorter end of the curve, mainly in the four- and five-month areas, taking advantage of the steepness in the curve. We also selectively added one-year bank floating-rate paper.

Portfolio positioning
Despite inflation surprising on the upside, we believe that it will stay in the target band in the short term and start rising towards the top of the band by year-end. We remain cautious and will take advantage of areas in the short end of the yield curve where we see the potential for returns, keeping in mind the current stage of the cycle.

Market and portfolio review
Money market yields kicked up during the first quarter of the year as the market started to price in the end of the easing cycle. A bout of risk aversion hit global markets, amid widespread political unrest in North Africa and the Middle East, and Japan's tsunami. However, risk appetite recovered towards the end of the period. Global inflation concerns around food and oil continued, with central bank rhetoric becoming more hawkish in most regions. The one-year NCD moved 0.4% higher, to end the year yielding 6.33%. The South African Reserve Bank kept rates on hold at both the January and March monetary policy meetings, delivering balanced statements. The Investec Money Market Fund returned 1.4% over the quarter.

Portfolio activity
After taking the portfolio longer ahead of the interest rate cuts, we allowed duration to shorten over the quarter. We invested mainly in the short end of the yield curve.

Portfolio positioning
Although the risks to inflation have increased, we believe inflation will remain within the 3% to 6% target band, before rising slowly towards the top end of the band by the end of the year. This should allow rates to remain on hold until the third quarter of the year. Given the global uncertainty and rising risks to inflation, we remain cautious at this stage of the cycle.

Market and portfolio review
Despite a change in global sentiment, money market yields continued to rally into the final quarter of 2010. The one-year NCD moved 0.5% lower to
end the year yielding just below 6%. As we expected, the South African Reserve Bank cut interest rates by a further 0.5% at the November monetary
policy meeting, taking the repo rate to a new low of 5.5%. Since the start of the cutting cycle in December 2008, the Reserve Bank has reduced
interest rates by a cumulative 6.5%.

Portfolio activity
Ahead of the interest rate cut, we locked into longer term fixed exposures at higher yields. The portfolio was thus well positioned for the rally. We
also locked into one-year floating rate spreads, which have continued to fall dramatically. This has benefited the portfolio.

Portfolio positioning
We remain more positive on inflation relative to market consensus. However, inflation has now clearly bottomed and we expect CPI to move back
towards the middle of the band. Overall inflation remains generally benign and this should allow rates to stay on hold throughout 2011. The market
has now rallied significantly. After taking the portfolio longer ahead of the interest rate cut, we prefer the medium to shorter end of the yield curve.