All,
Massive moves in many markets. The big thing is the Global Bond Market which I dipped my toe in and had it eaten off early this month.
The basically parallel shift higher of the entire US curve from 2’s to 10’s happened over two days. The driver of this move is I believe the overcrowded Bull flattener positioning at macro fund expecting the Fed to make a policy mistake and cause a recession. This narrative was punched in the face hard. Despite Powell and others adding fuel to the hawkish rhetoric, growth assets like stocks did fine. While long-term bonds got crushed. That adds up in this way
- The growth impulse which had been very negative all quarter recovered a bit despite the hawkishness which means that growth expectations may have further room to improve. Bad for bonds, good for equity
- Risk premiums expanded again on hawkishness which is bad for bonds and bad for equities
- Forward Inflation expectations remain anchored and highish. Neutral.
Given the extreme move and what we believe is a crowded trade of a flattener. We suspect the pain is being felt by those who expressed a “fed will cause a recession view” by taking a flattener with a net delta long duration.
Trades P/L YTD
We are stopped out of our edz2 trade with a max loss of 1%
We have made 6% on AUM in 2 weeks on our NKY long and JPY short and have rolled up and cut risk on both of those trades
Rolled the USDJPY call from 120 to 122 strike and have reduced exposure to 50bp
Rolled the NKY April call from 26250 to 27250 and reduced exposure to 50bp AUM
Outlook
If we are right and the Fed causes the recession narrative continues to unwind and cause pain in bonds we will look to stress in that market for a re-entry long both front end and back end