The All Bond Index increased by 3.4% over the 3rd quarter. The respective total returns were: 1-3 year +2.2%, 3-7 year +2.9%, 7-12 year +3.2% and 12+ years +4.0%.
Inflation linked bonds gained 0.5% over the quarter, while cash returned +1.9%.
United States employment data as measured by non-farm payrolls improved over the quarter leading to less volatility in US treasury bonds, however their inflation and other economic data did not provide enough evidence to support a rate hike at the September FOMC. Guidance from the Federal Reserve Bank suggests there should be a rate hike of 25bp's over the final quarter of 2016 assuming no major surprises domestically or globally develop. Data dependency remains the monetary stance of the FED.

Developed market yields remained at the lower bounds over the quarter with additional stimulus measures being considered by some central banks.
Oil Traded in a range of $42 to $52 per barrel over the quarter ending around $50 as OPEC agreed to cut production for the first time in 8 years.
South African political risk caused massive currency and bond market volatility which settled down toward the end of the quarter but was not resolved.

The third quarter hosted two South African Reserve Bank Monetary Policy Committee meetings. In July the MPC remained hawkish in the aftermath the Brexit referendum that caused market uncertainty. Growth was forecast down at 0.0% for the year and inflation marked higher. In September however the MPC delivered a cautiously dovish statement after higher second quarter GDP data caused a revision to the 2016 figure to 0.4%. The Governor said that 5 year forward inflation is still dangerously close to the top of the target band at 5.9%. He also commented that, "The outlook for growth remains constrained against a backdrop of weak domestic fixed investment and low levels of business and consumer confidence". In acknowledging these weak growth and investment measures the MPC went a step further than before by guiding that, "we may be close to the end of the hiking cycle should current forecasts transpire."

The Bond fund has actively adjusted its duration along with the increased market volatility over the quarter. For the final quarter we see the medium term budget as well as the ratings agencies deliver their sovereign assessment and the US Fed possibly normalise by hiking a further 25bp's. The fund will position accordingly bearing these risks in mind.

The All Bond Index increased by 4.4% over the 2nd quarter. The respective total returns were: 1-3 year +2.9%, 3-7 year +3.8%, 7-12 year +4.1% and 12+ years +5.0%.
Inflation linked bonds gained 4.4% over the quarter, while cash returned +1.8%.
The Federal Reserve Bank's public statements were responsible for a great deal of market volatility over the quarter as their attempts to provide policy guidance went from one extreme to the other. Comments which had strongly suggested a rate hike to be 'appropriate' in the coming months were reversed after employment data for May combined with revisions lower for April significantly disappointed against analyst's expectations. It was a quarter of extreme data watching, keeping global fixed income markets and specifically emerging markets highly volatile.

We expect the US market to lead global market actions broadly as independent high frequency data is scrutinised for indications of improving economic activity and inflation.
The big news over the quarter and something that delivered a surprise to global markets was the referendum in the United Kingdom which voted narrowly for the UK to leave the European Union. Financial markets were totally wrong on their prediction of the outcome and in the aftermath, risk assets were sold aggressively. Markets continue to be volatile however towards the end of June risk appetite seemed to cautiously return as markets and analysts attempt to work out just what the economic repercussions of this decision will be and the timeline thereof.

From a second quarter low of $38 per barrel, oil ended the quarter above $50. Other commodity prices led by gold ended the quarter on a firmer footing too.
South Africa's sovereign credit rating was the talk of the quarter as it seemed inevitable that Moody's was going to downgrade to one notch above non-investment grade after putting SA on a negative rating review and with Standard and Poors rating outlook already negative it was in the balance as to whether SA's foreign debt rating would be dropped to non-investment grade. As it happened all three ratings agencies (including Fitch who has SA on a stable outlook) maintained their ratings. Focus will now be on the mid-term budget in October as well as any labour or fiscal policy changes made in addition this year.
SA inflation for the quarter surprised analysts at the lower end of expectations whilst the major disappointment was SA GDP which shocked by shrinking an annualised quarter on quarter of -1.2%.

The MPC kept rates on hold in May with only one of six members voting for a hike of 0.25%. In light of the extremely weak growth outlook markets are not pricing a full further rate hike this year (at the time of writing end of Q2).

The Bond fund has actively adjusted duration along with the market volatility. SA bond yields continue to show attractive relative real returns, however prices will respond aggressively to global risk volatility. There will be good opportunities over the next quarter for active bond investments.

The All Bond Index increased by 6.6 % over the 1st quarter. The respective total returns were: 1-3 year +3.2%, 3-7 year +5.1%, 7-12 year +6.7% and 12+ years +7.7%. Inflation linked bonds gained 2.0% over the quarter, while cash returned +1.7%.

The Federal Reserve Bank, having hiked interest rates in December, became increasingly concerned about the risks arising from the global economy to their normalisation plans. Subdued global growth and emerging market volatility are increasingly of concern to the Fed's timing of rate increases despite US employment and general economic conditions improving.

The European Central Bank, in contrast to last quarter, exceeded market expectations and delivered more stimulus measures in March, cutting the deposit rate to -0.4% and extending its monthly asset purchases by EUR 20 billion to EUR 80 billion while expanding the investable universe to include investment grade, non-bank corporations.

Oil was stable trading in a range around $38 per barrel.

After a weak 2015 for South African fixed income assets, prices recovered over the first quarter posting solid returns. The budget was the main focus of the quarter as Minister Gordhan delivered a growth conscious budget that aims to cut Government expenditure and stabilise the debt to GDP ratio. VAT and Personal Income tax was not increased.

South Africa's sovereign credit rating was placed under review by Moody's ratings agency for downgrade. It is probable that the rating will be dropped to the lowest level of investment grade in the second quarter of 2016. Market performance is highly sensitive to the ratings agencies at present since last year's downgrades and the outlook that the foreign currency ratings next move possibly being to non-investment grade.

The MPC delivered two consecutive hikes of 25bp over the first quarter noting that inflation will only return to within the target range in 2018. This commitment to the inflation targeting mandate has been supportive for bonds in general as there is an unequivocal commitment to contain inflation.

Headline and core CPI continue to surprise to the upper side and as such we anticipate more interest hikes to follow in an attempt to contain the increases and return inflation to within the target range.

The ZAR has recovered some of the ground it lost over 2015 but it remains volatile and susceptible to increasing political risks against a weak economic growth backdrop.

The Bond fund has actively adjusted duration along with the market volatility maintaining a slight short overall exposure in light of the possible negative market reaction to a credit downgrade.

The All Bond Index declined by 6.4 % over the 4th quarter reversing all its gains for the year. The respective total returns were: 1-3 year -0.5%, 3-7 year -2.7%, 7-12 year -5.8% and 12+ years -8.8%.

Inflation linked bonds gained 0.9% over the quarter, while cash returned 1.6%.

Global markets spent the year concentrating on the timing and effects of the US Federal Reserve increasing interest rates from the low 0.00% - 0.25% where they have been since 2008. After holding in October they eventually hiked rates by 0.25%, in line with expectations, after October and November saw strong supporting US employment data. The Fed indicated that the path of interest rate hikes will continue to be gradual and data dependent.

The European Central Bank added more stimulus in the 4th quarter as expected, but underwhelmed somewhat in its quantum compared with market expectations. We expect European growth to improve while inflation remains stubbornly low.

Oil dropped by 20% over the quarter to end at $38 per barrel.

South African fixed income markets had an exceptionally weak quarter as a confluence of negative stimuli caused severe adverse market reactions. The currency and bonds maintained a weakening bias while they adjusted to the anticipated effects of US rate hikes. Global appetite has been reducing sharply for emerging market risk and commodity prices continue to adjust lower, reflecting the reduced global demand.

The final MPC meeting in November resulted in a policy rate hike of 25bp's to 6.25% continuing the SARB's path of gradual normalisation.

December saw ratings agency Fitch downgrade SA's credit rating to BBB-, one notch above junk. Standard and Poors (already at BBB-) held their rating, but surprised by changing the outlook to negative, a step which would take the foreign currency sovereign rating to non-investment grade quality (so called junk bonds status).

Against this weakening backdrop, on the 9th December the sudden replacement and rapid re-replacement of the South African Finance Minister confused and concerned markets. The liquid 10 year R186 bond yield moved from 8.80% to 10.62% in the initial aftermath. After the re-appointment of Minister Gordhan as Finance Minister, bond yields stabilised but remained weaker ending the year at 9.75%. The Rand per Dollar moved from 13.88 to 16.05 and back to 15.55 over the quarter.

The Bond fund has maintained a relative short duration to the index. The outlook for fixed income markets remains challenging as both the global and domestic growth outlook is weak. Inflation is expected to increase in line with the weaker currency. There will however be opportunities as yields adjust higher and markets eventually stabilise.