Macro Hedge Funds Betting on US Interest Rate Hikes See Sharp Decline in Returns This Month
Due to the unexpected drop in bond yields following the collapse of Silicon Valley Bank (SVB) in the United States, the returns of global macro hedge funds that had been betting on interest rate hikes have sharply declined.
According to major foreign media including the Wall Street Journal (WSJ) on the 25th, global macro hedge fund managers Maniyar Capital and Heidar Capital have seen their returns fall by more than 20% this month.
Heidar Capital's Jupiter Fund posted an astonishing annual return of 193% last year, but has lost 32% of its assets since the beginning of this month. Maniyar Capital's fund recorded a -22% return this month. Graiham Capital Fund and Lynx Asset Management are in a slightly better position but also suffered losses of around 10% this month alone.
Macro hedge funds refer to products that invest in bonds, foreign exchange, and other assets by anticipating macro variables and policy changes such as exchange rates and interest rates. These funds made significant profits by predicting and investing in the U.S. Federal Reserve's (Fed) interest rate hikes since the end of 2021, but recently suffered heavy losses as speculation spread that the tightening cycle could end earlier due to the sudden SVB bankruptcy.
In fact, the yield on the U.S. 2-year Treasury note, which is sensitive to U.S. policy rates, has been declining since the SVB incident. Before the SVB collapse earlier this month, the yield exceeded 5%, but it has now dropped to around 3.8%. The decline last week, when SVB went bankrupt, was the largest since 1987. Many macro hedge funds used leverage to maximize investment effects, so losses are expected to increase by the amount of borrowing costs.
As expected, the Fed raised the benchmark interest rate by only 0.25 percentage points at the Federal Open Market Committee (FOMC) meeting held on the 22nd (local time) after the SVB bankruptcy. Before the SVB incident, the market had anticipated a 0.5 percentage point increase, but later saw the possibility of a smaller 0.25 percentage point hike or even a rate freeze. Since the Fed's aggressive tightening led to higher corporate financing costs and accelerated bank deposit withdrawals, which caused the SVB collapse, calls for a slowdown in the tightening pace have increased.
The WSJ reported, "The bank failure triggered a massive movement in the bond market," adding that "macro hedge funds have been severely hit by the financial turmoil."
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