Bonds sold off strongly in the first part of 2009, but have regained a little territory in the past couple of months.

The ALBI yielded a positive 0.08% return for the month, with gains coming across all durations of the yield curve, other than 12+ years. In September, the 12+ segment lost 0.1%; the 7 to 12 year area gained 0.06%; the 3 to 7 year area gained 0.2%, and the 1 to 3 year area outperformed, gaining 0.63%. Cash, as measured by the STEFI, yielded 0.61%. The yield on cash has been moving steadily lower as the South African Reserve Bank has been cutting interest rates.

The Monetary Policy Committee of the South African Reserve Bank (SARB) has now cut interest rates by 500 basis points since their peak. However, the high indebtedness of local consumers, coupled with the effects of the National Credit Act, job losses and the generally tough economic environment, will likely see personal consumption figures remain depressed for some time.

High petrol, food and administered prices kept CPIX above the SA Reserve Bank's upper limit of 6%, however the lower oil price (from its peak) and the generally slowing economy are providing some abatement on the inflation front. The yield on the benchmark R157 bond moved higher in September - from 8.18% at the beginning of the month to 8.28% at the end of the month.

The yield on the longer dated R186 increased from 8.77% at the beginning of the month to 8.86% at the end of the month.

Currency volatility has traditionally been a significant aspect for South African investors to consider, and the local currency has strengthened sharply in the current year. In September the Rand strengthened from 7.77 to 7.70 against the US Dollar, strengthened slightly against the Euro (from 11.14 to 11.12), and against the Pound from 12.64 to 12.27.

Over the next few months we expect that the movement in the Rand and bond market will be largely determined by inflation expectations, yield differentials and prospects for future periods of risk aversion.

Although interest rates have come down strongly, future weakness in the Rand may still be a potential problem area, particularly with South Africa's gaping current account deficit. The SARB will continue to monitor the situation closely. With rising fiscal deficits in South Africa and worldwide, the shortage of government bonds that has characterized the local bond market for some time, will likely now be reversed.

The ABSA Bond Fund remains cautiously positioned, with a duration that is generally in line with the All Bond duration.

Bonds have sold off strongly in 2009 in the first part of year, after having surged for the latter part of 2008. However, bond movements in the June were again quite muted.

The ALBI yielded a negative 0.23% return for the month. In June, the 12+ segment lost 0.52%; the 7 to 12 year area lost 0.03%; the 3 to 7 year area lost 0.28%, and the 1 to 3 year area gained 0.11%. Cash, as measured by the STEFI, yielded 0.66%. The yield on cash has been moving steadily lower as the South African Reserve Bank has been cutting interest rates.

The Monetary Policy Committee of the South African Reserve Bank (SARB) kept interest rates unchanged at its June meeting, having cut interest rates by 450 basis points since their peak. However, the high indebtedness of local consumers, coupled with the effects of the National Credit Act, job losses and the generally tough economic environment, will likely see personal consumption figures remain depressed for some time. High petrol, food and administered prices kept CPI above the SA Reserve Bank's upper limit of 6%, however the lower oil price (from its peak) and the generally slowing economy are providing some abatement on the inflation front.

The yield on the benchmark R157 bond moved higher in June - from 8.26% at the beginning of the month to 8.78% at the end of the month. The yield on the longer dated R186 increased from 8.78% at the beginning of the month to 9.29% at the end of the month.

Currency volatility has traditionally been a significant aspect for South African investors to consider, and the local currency has strengthened sharply in the current year. Over the month, the Rand strengthened from 8.00 against the US Dollar to 7.86, from 11.34 against the Euro to 10.95, and from 13.14 against the Pound to 12.84.

Over the next few months we expect that the movement in the Rand and bond market will be largely determined by inflation expectations and risk aversion. The comparative safety of bonds is likely to appeal to investors in tumultuous times, though increasing aversion to emerging markets by offshore investors may make our bonds slightly vulnerable at higher levels.

Although interest rates have come down strongly, future weakness in the Rand may still be a potential problem area, particularly with South Africa's gaping current account deficit. The SARB will continue to monitor the situation closely, and technical factors, such as the degree to which the supply shortage of government bonds is reversed, will likely continue to influence the bond market.

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

Bonds have given up some territory in 2009 after having surged for the latter part of 2008. Bond movements in the month of March were quite muted.

The ALBI yielded a positive 0.04% return for the month, with the inversion of the local yield curve staying fairly constant. In March, the 12+ segment lost 0.50%; the 7 to 12 year area gained 0.38%; the 3 to 7 year area gained 0.06%, and the 1 to 3 year area gained 0.64%. Cash, as measured by the STEFI, yielded a steady 0.89%. The yield on cash has been moving lower as the South African Reserve Bank has been cutting interest rates.

Whilst the interest rate tightening cycle has now reached a peak, the high absolute level of interest rates, along with the implementation of the National Credit Act, increasing job losses and the generally tough economic environment are impacting on personal consumption figures and consumers will likely be under pressure for the next while. High petrol, food and administered prices kept CPIX above the SA Reserve Bank's upper limit of 6%. However the recent collapse in the oil price and the generally slowing economy are providing some abatement on the inflation front and we expect inflation numbers (and interest rates) to drop further.

The yield on the benchmark R157 bond barely moved in March - from 8.12% at the beginning of the month to 8.15% at the end of the month. The yield on the longer dated R186 increased from 8.53% at the beginning of the month to 8.65% at the end of the month.

Currency volatility, and the general weakness of the Rand, have been significant aspects for South African investors to consider, although the local currency bounced back further in March. Over the month, the Rand strengthened from 10.47 against the US Dollar to 9.57, from 13.20 against the Euro to 12.62, and from 14.75 against the Pound to 13.70.

Over the next few months we expect that the movement in the Rand and bond market will be largely determined by inflation expectations and risk aversion. The comparative safety of bonds is likely to appeal to investors in tumultuous times, though increasing aversion to emerging markets by offshore investors may make our bonds slightly vulnerable at higher levels.

Although interest rates have started to come down, future weakness in the Rand may still be a potential problem area, particularly with South Africa's gaping current account deficit. The SARB will continue to monitor the situation closely, and technical factors, such as the degree to which the supply shortage of government bonds is reversed, will likely continue to influence the bond market.

The ABSA Bond Fund remains neutrally positioned, with a duration that is generally in line with the All Bond duration.

Bonds again surged in December. Investors have clearly started to believe that the ratetightening cycle is coming to an end, and that inflation will moderate. The safe haven status of fixed income instruments worldwide has also come in to play over the last 6 months as equity markets have been in turmoil.

The ALBI yielded a positive 6.93% return for the month, with the inversion of the local yield curve decreasing. In December, the 12+ segment gained a massive 11.11%; the 7 to 12 year area gained 7.49%; the 3 to 7 year area gained 5.61%, and the 1 to 3 year area gained 2.12%. Cash, as measured by the STEFI, yielded a steady 1.00%, benefiting from the relatively high money market rates currently available.

The Monetary Policy Committee of the South African Reserve Bank (SARB) cut interest rates by 50 basis points at its December meeting. Whilst there had been growing opinion that the interest rate tightening cycle had reached a peak, the effects of previous interest rate increases, along with the implementation of the National Credit Act, and job losses, are impacting on personal consumption figures and consumers will likely be under pressure for the next while, even with interest rates coming down. High petrol, food and administered prices have kept CPIX above the SA Reserve Bank's upper limit of 6%, however the recent collapse in the oil price and the generally slowing economy are provided some abatement on the inflation front.

The yield on the benchmark R157 bond decreased further in December from 8.27% at the beginning of the month to 7.21% at the end of the month.

Currency volatility, and the general weakness of the Rand, have been significant aspects for South African investors to consider, though in December there was finally a rebound in the local currency. The Rand strengthened against the US Dollar in December from 10.55 to 9.53, from 13.25 against the Euro to 13.16, and from 15.64 against the Pound to 13.73.

Over the next few months we expect that the movement in the Rand and bond market will be largely determined by inflation expectations and risk aversion. The comparative safety of bonds is likely to appeal to investors in tumultuous times, though increasing aversion to emerging markets by offshore investors may make our bonds slightly vulnerable at these levels.

Although interest rates have started to come down, weakness in the Rand may still be a potential problem area, particularly with South Africa's gaping current account deficit. The SARB will continue to monitor the situation closely, and technical factors, such as a shortage of supply of government bonds, will likely continue to influence the bond market.

The ABSA Bond Fund remains cautiously positioned, with a duration that is generally in line with the All Bond duration.