The STANLIB Bond Fund returned 6.5% compared to the benchmark All Bond Index return of 4.9%, an outperformance of 1.6%. The Fund remained the top performing fund for the one, two, three and five year majormeasurement periods.

The bond market opened the quarter at 8.65% on the RSA 2015 R157, traded up to 8.90% before touching a low of 8.42%, however, closing the quarter little changed at 8.63%. The modified duration of the Fund was kept short of the index at the beginning of the quarter, in order to benefit the Fund as interest rates go up. The short duration was mainly achieved by selling some longer dated paper and keeping new cash inflows in cash. The Portfolio retained its bullet strategy of being overweight the 3-7 years and 7-12 years area of the yield curve.

The bond market remained volatile during the third quarter as the SARB's MPC continued to hike the repo rate for the second successive meeting. Volatility in the market remained high with the market mainly driven by weakness in the Rand against major currencies. The yield curve inverted towards the end of the quarter, leading to a substantial outperformance of longer dated bonds. This inversion was as a result of the market expecting further interest rate hikes at the next monetarymeetings.

Modified Duration: 4.1 Years

The Fund delivered a return of 5.1% for the 12 months ending 30 June 2006. The bond market opened the quarter at 7.30% on the RSA 2010 (R153), traded down to 7.14% before embarking on a substantial sell-off to touch a quarter's high of 8.89%. The modified duration of the Fund was kept close to the index at the beginning of the quarter, but this was substantially shortened as yields started to go up. The short duration was mainly achieved by selling some longer dated paper and keeping new cash inflows in the bank. The Portfolio's retained its bullet strategy of being overweight the 3-7 years and 7-12 years area of the yields curve. The bond market started the second quarter on a quiet mode, with the RSA 2010 bond staying within a tight range. Sentiment in the market started to turn negative in May as emerging markets risk re-priced leading to large liquidations that affected South Africa. The Rand weakened substantially, exacerbating the bearish sentiment in the bond market, with R153 touching a high of 8.89%, last seen in September 2006. During the quarter, the SARB MPC unexpectedly increased the benchmark repo rate by 50 basis points as inflation fears increased. The SARB is expected to increase the repo rate by at least a further 100 basis points by the end of this year.

The STANLIB Bond Fund was ranked the top performing Fund over all major measurement periods at the end of the first quarter of 2006. For the 12 months period ending March 31, the Fund outperformed the All Bond index by 80 basis points, returning 14.2%.

The RSA 2010 (R153) opened the year at a yield of 7.315%, traded up to 7.35% before compressing during the quarter to touch the period's low of 7.04%. The Fund was overweight the 3-7 years and 7-12 years sectors of the All Bond Index. The underweight 12+ year's sector position helped the Fund outperform during the quarter as the yield curve normalised. The modified duration of the Fund was shortened towards the end of the quarter, so as to minimize any potential capital loss as the market yields started to rise. During the quarter, the Fund received some capital inflows, which were subsequently used to buy ABSA 2015 and Eskom 2033 corporate debt.

The first quarter of the year saw limited volatility in the market as traders tried very hard to push levels on RSA 2010 bond lower, which failed, leading to a correction back to 7.35%. During the quarter, the MPC left the repo rate unchanged. Local inflation data was mostly benign, although the Governor's testimony to the Parliamentary Committee on Finance was more hawkish. Bond yields are once again expected to remain sideways for longer, since inflation is expected to stay within the 6-3% target range.

The STANLIB Bond Fund ended the year 2005 as the top performing fund over all major measurement periods. For the 12-month period ending December 2005, the Fund outperformed the All Bond Index by 60 basis points returning 11.4%, attaining first position in the category ranking.

The fourth quarter saw yields compress significantly as the outlook for inflation started to look positive. The RSA 2010 (R153) bond opened the quarter at 7.89% traded a high of 7.915% before embarking on a 40 basis points bull market that eventually ended with an all time low of 7.28%. The Fund maintained an overweight position in the 3-7 years and 7- 12 years sector of the All Bond Index. The Fund's modified duration at the beginning of the quarter was short, but was subsequently covered in time to benefit the Fund when yields started to descend. In terms of trade, two new corporate debts were introduced to the portfolio, i.e. FirstRand 2014 and Old Mutual 2015 funded by the sale of RSA government debt.

The last quarter of the year started quietly as rates looked like they would just stay in a range, but the backdrop suddenly changed after the SARB gave a positive assessment on inflation in its last MPC in December, despite leaving rates unchanged. Inflation numbers released during the quarter were mostly benign. Bond yields are expected to continue to be stable for the next 12 months as inflation is expected to remain within the 6%-3%targeted band.