Extreme market volatility erupted in September. Government bonds were one of the few assets to gain and yields moved lower over the month. Performance benefited from tactical short-term trading of US treasuries, mainly through options and particularly towards the lower yield end of the curve both in ten-year and long bonds.A short sterling calendar spread (long June/December 2009 versus short December 2008) contributed to performance and we booked profits as this reached extreme levels in September due to LIBOR pressures for the earlier months versus lower rates longer term. However, short term trading in the five year area of European bonds from the long end early in the month detracted.In foreign exchange (FX), having short US dollar positions through the month detracted. However, a long position in the Japanese yen greatly helped performance, as the Japanese currency benefited from investor risk aversion. Being short the Swedish krona also added to performance, as this currency was hurt by a sell-off in what investors considered riskier assets.The money market portfolio performed well as short-term yields came down. It also benefited from not being exposed to poor-quality credit instruments.
