The fund fears that a sudden jump in interest rates is imminent especially when the US debt/deficit situation is worsening. Moreover, mortgage spreads recently widened and there was some...

The fund fears that a sudden jump in interest rates is imminent especially when the US debt/deficit situation is worsening. Moreover, mortgage spreads recently widened and there was some convexity-related buying causing 10-year T-bonds to move down to 3.5% (as demand rises, prices go up and yields down).