The All Bond Index delivered -1.49% for the month with the 1-3 year and 3-7 year indices performing the best returning 0.31% and -0.67% respectively. The yield curve slope steepened over the month with the R186/R203 spread widening to 137bps from 115bps. This was due to foreign selling at the longer-end of the curve and a pause by the SARB during their May MPC meeting which tamed market expectations of an aggressive tightening cycle.

Contributors to performance:

The Fund marginally out-performed the ALBI during May due to the underweight duration position in the 12+ year area of the yield curve which was the worst performing sector and is overweight in the 3-12 year area where we see more value.

Detractors to Performance:

Performance was hindered by credit spreads widening on average by 5bps but this was limited given the low duration of credit in the fund. The 12+ year underweight was reduced during May as bonds sold off towards 9.5%. The Fund maintains high quality credit mainly via bank and State Owned Corporation (SOC) exposure in both the bond and cash markets to take advantage of the additional pick-up in yield. SOC and Bank funding spreads have been on the rise and we will look to increase exposure in these credits at attractive spreads.

The Fund aims to generate returns above the JSE All Bond Index over time, utilising active bond management combined with strategies which aim to reduce risk over time.

The All Bond Index delivered -0.77% for the month with the 1-3 year and 3-7 year indices performing the best returning 0.15% and -0.13% respectively. The yield curve flattened over the month with the R186/R203 spread narrowing to 108bps from 119bps.

The fund out-performed the ALBI over the month due to the slight underweight duration position. The fund holds an overweight position in the 3-12 year area of the curve where we see more value with an underweight in the 12y+ area. Yield enhancements are mainly via bank and State Owned Corporation (SOC) exposure in both the bond and cash markets.