"If a soft landing is not properly engineered, defaults rise and liquidity events begin to happen, credit spreads will widen," said Hessel. He favours taking a short position, a bet that an asset price will weaken, on single name high yield credits or the indices that track the performance of these companies. * Key trade: Short high yield credit indicesīrian Hessel, chief risk officer and COO at Global Credit Advisers, believes the pricing in of higher interest rates has not reached the riskiest parts of the corporate bond market.
"Concern now for markets is that reacceleration of the economy will lead to higher terminal rates," said Lancaster. Lancaster favours a trade selling long-term borrowing costs against shorter-term ones, on the view that the spread between them will decline. Graphic: Tech stock valuations and the broader market, Ĭolin Lancaster, global head of discretionary macro and fixed income at Schonfeld, favours selling interest rate futures based on the cost of borrowing in the Secured Overnight Financing Rate (SOFR), a benchmark interest rate. "If you have conviction that inflation will be stubborn, the opportunity for continued multiple contraction is significant, and being short these sectors, particularly in the more speculative parts – the non-profitable parts of tech – is attractive," said Cole. * Size: Man GLG is a $24.1 billion fund, part of the $138.4 billion Man Group as of end-SeptĮd Cole, managing director of discretionary investments at Man GLG, believes that eventually, inflation will fall sharply because earnings will fall and unemployment will rise.Ĭorners of the market where valuations have run the highest now face the sharpest reversal of fortune, said Cole.Ĭommunications, consumer discretionary stocks (such as fashion brands) and tech companies have posted the best stock price performance against a backdrop of deteriorating earnings expectations, he said.
near and long term rates, Ģ/ MAN GLG, a discretionary fund inside Man Group "If you think the yield curve is going to normalise, that's how you execute that trade," said Tropin. yield curve, as measured by the gap between two and 10-year yields is at its most inverted in decades in a sign of recession risk. Treasuries are too "expensive" compared to 2-year notes, as they yield so much less. Ken Tropin, chairman and founder of Graham Capital, said if interest rates remain higher, then long-dated government bonds such as 10-year U.S. * Systematic and actively managed macroeconomic funds The ideas do not represent the trading positions of the firms, which cannot be revealed for regulatory reasons.
Five prominent hedge funds shared five ideas using five different asset classes to profit from inflation so pugnacious it might force the Federal Reserve to keep interest rates higher for longer.
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