2011 Opening Positions

• Market's Risk On tendency has been evident to me for most of Dec10, driven mostly by better US economic data (post weak Nov NFP hurdle).
• Have built up a Risk On basket during the course of the month with the intention of carrying them over as Core positions for 2011. Positions and their 2010 year end mark-to-market levels are indicated in the accompanying table. Appx size = 1.5% EAR each.
• Using long US10 year notes as a positive carry Hedge (3% EAR) against the Core (9% EAR). Barring an inflation scare, this should be effective. Weak growth = Risk Off = higher TY.  But if inflation worsens significantly, then we get lower TY and Risk Off, ie trade falls apart. [Managed to trade the hedge quite successfully against Core in Dec10, buying TY above 3.50% and selling below 3.30%].
• Was supposed to stop trading in Dec10 but the Risk On charts were too nice and the absolute level of TY was too attractive to pass up. In hindsight, was a very good decision as the Risk On trades are in the money, but P taken in the last financial year.