Investors revive inflation trades as 6% Fed rate risk grips Wall Street
-
Loading... - Sabine Fritz
- 07 Mar 2023
- 64 Views
- 0 Like
- 0 Comment
Spooked by a flurry of hotter-than-expected US economic and inflation data last month, investors are reviving trading strategies that bet on a higher peak in interest rates.
The recalibration in inflation expectations has led some investors to bet on a policy rate of 6% or even higher. Risk assets like stocks and corporate bonds that benefited from a months-long disinflationary narrative until the end of January have lost momentum, with traders now seeking shelter in safer assets like Treasuries or cash.
"The last month was a bit of a wake-up call," said Doug Fincher, a portfolio manager at Ionic Capital Management and a co-portfolio manager of an inflation protection exchange traded fund. "People still under appreciate it, but we're definitely seeing renewed interest in inflation-type products," he said.
Bets on the Federal Reserve more aggressively hiking rates have gained more traction in money markets. The probability that the Fed may increase rates to as high as 6% in September, which is when Fed funds futures traders see rates peaking, stood at over 13% on Monday, up from about 8% a week earlier, CME Group data showed.
Alfonso Peccatiello, chief executive of The Macro Compass, a global macro investment strategy firm, said anecdotal evidence from clients in the hedge fund industry showed "large interest" in trading structures that bet on the Fed's policy rate hitting 6% or higher by December, and on interest rates still above 5% by June next year. Read More..
