Early estimates indicate the Credit Suisse/Tremont Hedge Fund Index (“Broad Index”) will finish up approximately 0.30% in December (based on 74% of assets reporting).
Prompted by concerns with deflation, on December 16th the US Federal Reserve lowered the central Fed Funds rate to a range between zero and 25 bps, the lowest level since 1954. The move points to an expanded role by central banks, with the Fed announcing it would use “all available tools” to promote economic growth, including shifting troubled assets from private to public balance sheets by purchasing agency debt and mortgage-backed securities.
The Fed’s announcement of its quasi-zero interest rate policy (ZIRP), was followed by the Bank of Japan cutting its overnight lending rate from 0.3% to 0.1%, and announcing that it would buy corporate debt for the first time. Other countries that implemented rate cuts included the European Central Bank, the UK, China, Switzerland, Australia, Taiwan and Korea.
Investment activity in most hedge fund strategies was relatively quiet throughout the month, however, as many managers maintained minimal risk exposures. Ongoing deleveraging in 2008 by funds and investors resulted in an uncommitted pool of $9 trillion in cash that is waiting on the sidelines (as measured by the St. Louis Federal Reserve).
Persisting trends in bond and currency markets have resulted in gains for trend-following managers in the Managed Futures/CTAs and Global Macro strategies. Namely, yields fell following the Fed’s rate cut announcement, with US 10-year notes touching 2.04% on 18 December, the lowest level since 1953 when records began.
Currency markets also experienced a shift as the US Dollar ended its 12 week rally with a 10% correction, sliding to a low of US$ 1.45 per Euro on 18 December.
L.D.