Long bond yields ended the month 0.15% weaker, yielding 8.96% compared to May's closing yield of 8.81 %. The fund continued to maintain a small overweight duration position relative to the All Bond Index.

We continue to look for opportunities to add to the credit exposure within the fund.

The Fund returned -1.01 % for the month.

1 O-year bond yields fell to 8.16% from the February close of 8.54% during the first half of March before reversing their gains to close the month slightly weaker at 8.60%.

The Fund has increased its modified duration slightly above that of the All Bond Index, resulting in the Fund having a greater sensitivity to interest rates than the index. This positioning is a function of the current real return offered by bonds as well the weak cyclical environment which prevails.

After the previous month's speculation of an emergency MPC meeting, March saw the announcement from the SARB that the MPC would move to monthly meetings.

As a result of the new schedule of meetings, the MPC met during the month and announced a 1 % cut in the Repo rate. The SARB has now cut the repo rate by 2.5% since December. The FRA market continues to price for further interest rate cuts over the course of the year.
February's headline inflation release at 8.6% was notably higher than the consensus expectation of 8.1 %. Although the food category still accounted for the greatest contribution to headline inflation, the nonfood categories' month-on-month increase of 1.4% provided the disappointment.

The corporate bond market saw the Airports Company of South Africa (AA-) raise R556m of a 7 year bond at 2.8% above the equivalent government bond and R50m of 14 a year bond at 2% above the equivalent government bond.

During the month Fitch Ratings also downgraded the credit ratings of a number of local issuers. Old Mutual Life Assurance Company was downgraded to AA+ from AAA, Sappi Manufacturing to A+ from AA-, Standard Bank to AA from AA+ and Metropolitan Life to A+ from AA-.

The Fund returned -0.8% for the month while the rand appreciated 5.5% against the US dollar, 12.4% against sterling and depreciated 2.9% against the euro.

December saw another month of dramatic strengthening of international government bond yields following further rate cuts. Unfortunately the Fund's performance was offset by the effects of strong rand appreciation against the US dollar and sterling.

The Fund investments remain focused on corporate bonds. The majority of the holdings are in the US and Europe, together with some holdings in the UK and to a lesser extent in Asia.

The Bank of England followed its November 1.5% cut in the official bank rate with a further 1.0% cut on 4 December, citing concerns that the economic downturn had gathered pace and data demonstrating that consumer spending and business investment had stalled. The official bank rate is now 2.0%. The MPC noted that inflation had fallen and also strongly signaled that the current economic climate remained the focus, and that further cuts could follow shortly.

In the US, on 16 December the Federal Open Market Committee unanimously approved a 75bps decrease in the discount rate to 0.5% on the basis of available data indicating that consumer spending, business investment and industrial production had declined, and the outlook for economic activity had weakened further. With limitations on how much further is can ease rates the US, policy makers are turning to spending by the new administration to prime the US economy.

The ECB dropped interest rates by 75bps with effect from 10 December, with its President citing concerns that the regional economic outlook was "surrounded by a high degree of uncertainty with risks to the downside", and that inflation looked to stabilise within the ECB target over the policy term.