There is always some degree of prevailing market volatility, but during periods of market stress, volatility often spikes across all asset classes. The chart on the left shows the spike in equity, interest rate, and foreign exchange volatility at the onset of the pandemic, measured by a weekly z-score or deviation from historical conditions. On the right, we show hedge fund returns less short-term rates on the y-axis plotted against the historical 3-month UST on the x-axis by decade. As you will see, higher rates in the 1990s supported higher returns, while a prolonged period of near-zero yields in the 2010s provided a smaller “boost” to returns. However, with rates now moving higher, returns should receive a boost to returns from their collateral and cash holdings.