Ellington dips


An unprecedently sharp sell-off in fixed-income markets created serious difficulties for many funds. In July, save for short-biased and market-neutral, mortgage backed funds had the lowest median performance of any hedge fund category.

Treasuries saw the most rapid rise in 10-year yields for a decade, as investors absorbed the idea that the Fed had finished its interest rate easing cycle. Although many hedge funds were preparing for this in late June, the speed and severity of the sell-off caught several hedge funds off guard. Many attribute this to convexity hedging in the mortgage arena.

Not suprisingly, the impact was particularly