Bonds continued to rally in August after staging a dramatic turnaround in July. Investors have clearly started to believe that the rate-tightening cycle is coming to an end, and that inflation will eventually moderate.

The benchmark bond index (the ALBI) yielded a 1.28% return for the month, and the curve continues to be somewhat inverted. In August, the +12 year segment gained 1.47%; the 7 to 12 year area gained 1.08%; the 3 to 7 year area gained 0.99%, and the 1 to 3 year area gained 1.56%.

Cash, as measured by the STEFI, yielded a steady 1.02%, benefiting from the relatively high money market rates currently available.

The yield on the benchmark R153 bond decreased further, from 10.2% at the beginning of the month to 9.77 % at the end of the month. The yield on the longer dated R157 bond moved down from 9.22% at the beginning of the month to 9.16% at the end of the month.
The Rand weakened against the dollar in August - over the month, the Rand went from 7.32 against the Greenback to 7.69. However, the Rand strengthened against the Euro from 11.44 to 11.29, and against the Pound from 14.53 to 13.96.

Over the next few months we expect that the movement in the Rand and bond market will still be largely determined by inflation expectations. The relative safety of bonds might also be appealing to investors in tumultuous times.

Several negative factors such as a higher petrol price, rising food prices and higher administered prices have kept CPIX above the SA Reserve Bank's upper limit of 6%, however there has been some slight abatement from the stronger Rand and lower oil prices.
There is now a growing opinion that the interest rate tightening cycle may have reached a peak, but the SARB will continue to monitor the situation closely. Technical factors, such as a shortage of supply of government bonds may well continue to influence the bond market.

Other than the short end of the curve and cash, all segments of the domestic fixed investment market weakened further in June, following on a soft performance over the past few months. The ALBI yielded a negative return of 1.73% for the month, with the very long end of the yield curve again moving higher. The curve continues to be somewhat inverted. In June, the 12+ segment lost a massive 3.60%; the 7 to 12 year area lost 2.45%; the 3 to 7 year area lost 1.87%, with the 1 to 3 year area gaining 0.53%. Cash, as measured by the STEFI, yielded a steady 1.00%, benefiting from the relatively high money market rates currently available. The yield on the benchmark R153 bond increased from 11.53% at the beginning of the month to 11.75% at the end of the month. The yield on the longer dated R157 bond moved up from 10.13% at the beginning of the month to 10.72% at the end of the month. The Rand weakened against major currencies in June - over the month, the Rand went from 7.60 against the US dollar to 7.83, also weakening against the Euro from 11.83 to 12.33 and against the Pound from 15.04 to 15.61. Over the next few months we expect that the movement in the Rand and bond market will still be largely determined by inflation expectations. Several negative factors such as a higher petrol price, rising food prices and higher administered prices have kept CPIX above the SA Reserve Bank's upper limit of 6%. The SARB will continue to monitor the situation closely. Technical factors, such as a shortage of supply of government bonds may well continue to influence the bond market. The ABSA Bond Fund remains cautiously positioned, with a duration that is moderately underweight the All Bond duration.

Most segments of the domestic fixed investment market weakened further in March, following on a soft performance for the past couple of months. The ALBI yielded a negative return of 0.53% for the month.

The very long end of the yield curve again moved higher, though the curve continues to be somewhat inverted (The 12+ segment lost a substantial 1.81%). The 7 to 12 year area lost 0.62%; the 3 to 7 year area lost 0.41%, with the 1 to 3 year area again in positive territory, yielding a positive 0.51%.

Cash, as measured by the STEFI, yielded a steady 0.93%, benefiting from the relatively high money market rates currently available.

The yield on the benchmark R153 bond increased from 9.58% at the beginning of the month to 9.72% at the end of the month. The yield on the longer dated R157 bond moved up from 8.99% at the beginning of the month to 9.23% at the end of the month.

The Rand continued to weaken in March - over the month, the Rand weakened against the US dollar from 7.75 to 8.09, against the Euro from 11.88 to 12.79 and against the Pound from 15.41 to 16.03.

Over the next few months we expect that the movement in the Rand and bond market will still be largely determined by inflation expectations. Several negative factors such as a higher petrol price, rising food prices and higher administered prices have kept CPIX above the SA Reserve Bank's upper limit of 6%. It remains to be seen whether the interest rate tightening cycle has now reached a peak, as there are still some inflationary pressures that will be closely monitored by the SARB.

Technical factors, such as a shortage of supply of government bonds may well continue to influence the bond market.

Bond rates moved up moderately in March. The yield on the benchmark R153 bond rose from 7.98% at the beginning of the month to 8.19% at the end of the month. The yield on the longer dated R157 bond rose over the month from 7.63% at the end of February, to 7.84% by the end of March. The Rand weakened against the US dollar from 7.24 to 7.27 during the month. Against Sterling the Rand weakened from 14.21 to 14.34 over the month, and against the Euro from 9.56 to 9.69.

Over the next few months the direction of movement for the Rand and bond market will be largely determined by the increase in Consumer Price Inflation. Several negative factors such as higher petrol prices, rising food prices and higher administered prices could push CPIX above the SA Reserve Bank's upper limit of 6%, which may trigger off further interest rate rises if the Reserve Bank believes that the rise in inflation may persist. Technical factors, such as a shortage of supply of government bonds may also influence the bond market.

The Absa Bond Fund outperformed the All Bond Index, with a negative 0.2% return for the month, better than the loss of 0.4% from the benchmark All Bond Index, but nevertheless a loss.

The Fund remains cautiously positioned, with a duration that is moderately underweight the All Bond duration.