The financial crisis accelerated with a total of twelve major financial institutions either bailed out by their government, nationalised, declared bankrupt or forced into a merger. The rapid demise of these financial institutions on both sides of the Atlantic shocked markets and risk aversion and volatility spiked higher with liquidity being virtually eradicated. Global economic growth deteriorated as evidenced across most indicators and commodity prices have fallen sharply in response.The US dollar ended the month higher again as it gained support from a deterioration in global ex-US growth and the unwinding of short US dollar / emerging market positions. Emerging market debt posted its worst monthly performance in over a decade in September.Our interest rate and currency decisions both contributed to performance, as did our allocation to government bonds.Within interest rates, a sterling overnight swap rate and a long euro duration position in the front end of the yield curve were the best performers. Our currency positions were also positive, in particular our overweight Japanese yen and underweight New Zealand dollar positions. Non government bonds continue to perform poorly, the main detractors to performance being our exposure to US mortgage backed securities and subordinated financials.Our small allocations to high yield and emerging market debt were also negative for the fund.
