10 year yields ended the- month at 7.90%, marginally stronger than where they closed last month. Yields were relatively volatile throughout the month, getting as low as 7.74% and as high as 8%. Inflation continued to surprise to the downside at 3.5% for August with the impact of the strong rand evident.

The local credit market saw a number of issuers raising funding. Barloworld (A+ rated) raised R1 billion across a number of different bonds. The fund participated in the 7 year fixed bond which priced at a spread of 2.38%.

Imperial (A rated) raised R2 billion with the fund participating in the 7 year fixed bond, which made up R1.5 billion of the total issue, at a spread of 2.1 %. Within the financial sector both Standard Bank (AA rated) and African Bank (A rated) raised term funding. Standard Bank raised R2 billion and African Bank raised R1 billion.

The fund did not participate in either of these two issues as it already held exposure to both banks. All four corporate issues were comfortably oversubscribed.

The fund retains its short duration position versus the All Bond Index as well as its overweight in credit.

Long bond yields drifted higher during the month to close at 8.86% from the 8.75% they were yielding at the end of May. The yield curve saw further steepening on the back of this weakness. CPI for May at 4.6% year-on-year was in line with the consensus forecast and 0.2% below April's print, well within the SARB's target band.

The corporate bond market was relatively quiet during June with no large nominal bond issues during the month. The fund participated in a 5 year Investec subordinated debt issue (A rated) which priced at 2.57% over the equivalent government bond.

Credit spreads continue to compress and although we have seen a significant amount ogf tightening over the first half of the year, continue to offer value.

Long bonds enjoyed a good month with yields rallying 0.26% to end the month yielding 8.62%.
February inflation printed at 5.7% year on year, in line with the consensus forecast but also importantly within the SARB's targeted range of 3-6%. The market received further impetus toward the end of the month with the announcement by the SARB of a 0.5% cut in the repo rate. Given the rally in bond yields the funds long duration position was removed. The fund currently maintains a neutral duration position versus the All Bond Index.

Credit issuance was dominated by the City of Cape Town which issued its third bond during the month. The city, which has an AA equivalent rating from Moody's, raised R2bn of a 15 year bond at a spread of 2.08% above the benchmark government bond. This was 0.5% lower than where it issued a similar instrument last year, reflective of the improved appetite in the market for credit issuance. African Bank (A+) also returned to the market issuing R500m of a 5 year bond at a spread of 3.25%.

10-year yields ended pretty much, where they started at around 9.15%. SA corporate bond activity proved to be equally subdued. Spreads across the ratings spectrum barely changed, although in the early part of the month we did see one or two financial companies successfully issuing at tighter spread levels as investors continued to look for yield enhancement.

Our Portfolios maintained their slightly long duration positioning We also continue to accumulate further exposure to non-government credits, adding to our exposures to the financial sector where ABSA, First Rand and Investec all issued new bonds, I in addition to increasing our weighting to parastatals via a purchase of Development Bank bonds. Prospective returns from corporate I bonds over the next 3-5 years are in excess of 10% and we view this as an attractive medium term opportunity against our view of long-term inflation at 5.5%.