During the month the Trust returned -0.3%. Bond yields in all the major markets continued to be very volatile over the month as investors remained concerned over the deepening credit crisis and the potential damage to the economy. US yields rose by 0.25%, despite the deterioration in US economic data.The passage of the US financial aid package and further aggressive interest rate cuts globally led to higher yields on longer-dated bonds as the risk of higher inflation in the future increased, especially in the US. Outside the US, in the Eurozone and the UK, output and employment data continued to weaken further and inflation remained elevated. Overall yields in Europe declined slightly, largely as a result of the weaker output and confidence data, although UK Gilt yields rose marginally.Japanese data tended to be weak, although bond yields remained flat in October. In response to the sharp sell off in US Treasuries we positioned the Trust to benefit from rising interest rates, mainly by being short of long-dated US bond futures. Currency markets continued to be volatile, with the US dollar appreciating significantly against European currencies and Sterling, whilst the Yen was a major beneficiary of currency risk aversion.In response to the strength of the US dollar and the Yen, we moved from a US dollar long position to a net short position. Instead, we favour a basket of currencies such as the Australian dollar, the Norwegian krone, the Canadian dollar, the Swedish krone and the Mexican peso as these currencies have become relatively cheap in our view and already reflect a huge amount of economic bad news. Additionally, we established a short Yen position relative to the US dollar.Given the policy response of the authorities globally and the amount of bad news already reflected by markets, we believe the major risks over the medium term are that growth and inflation prove stronger than expected.
