sgupta0827

To add to Rus1Bus inital post;
Treasuries are normally a safe haven during recessions. The increased demand drives up Treasury prices and as a consequence, yields decrease. Being short a Treasury and long Corporates, you get hit from both sides in this case:
1. Treasury prices increase. You are short these holdings and now obligated to deliver them in the future after purchasing at new higher prices.
2. As an investor, you are long the Corporates. Reccession causes the required yield on Corporates to increase. Your Coporates go down in value as a consquence.
You loose on your short position and also on your long position. Treasury yields drop and Corporate yields go up. A compounding effect on your losses due to your positions and also new higher spread between Corporates and Treasuries.
These type of funds play the spreads and may even incorporate credit derivatives, such as CDS in order to take advantage of arbitrage opportunities. Consequently, these type of funds are usually catorgized as Fixed Income Arbitrage funds. The range in strategies, types of investments held and fund characteristics can vary greatly within the broad Fixed Income Arbitrage Hedge Fund Category. In my opinion, it is most efficient to look at each fund as its own unique type. Degree of leverage can make two Hedge Funds that seem similar on paper, have quite different return characteristcs etc.