In October, market turbulence, combined with a weakening growth outlook and a reappraisal of the impact of the credit crunch, provided support for government bonds globally. An unexpected globally coordinated cut in interest rates led the potential path of interest rates to be revised down substantially.The portfolio was positioned for yields to fall (prices to rise). During the month, we reduced exposure by selling bund futures, as we expected government intervention to lead risk assets to outperform government bonds. In the US, we closed the underweight in 20-year treasury futures to leave the fund with a positive view on 20-year inflation-linked bonds; however, an unwinding of hedge fund positions led to this position making a loss.The holdings of financial sector bonds decreased in price, reflecting continuing negative sentiment on financial market stability and a lack of confidence in the banking sector. We participated in new issues from beverage companies Diageo, Pepsi and Coca Cola Enterprises, and Dutch utility company Gasunie. These performed well relative to government bonds; the holding in Pepsi was sold at a profit.
206.20p
