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Hedge funds rebuild UK sterling rates positions after euro shock
The shift follows a more than week repricing after a surprisingly hawkish ECB meeting, which boosted volatility and forced some sterling curve steepener and front-end trades to be reduced or closed.
Hedge funds are starting to rebuild positions in UK interest-rate, or sterling rates, markets after a sharp sell-off earlier this month forced traders to unwind sterling rates strategies, according to a report by Risk.net cited by Hedgeweek.
The rebuilding comes more than a week after a surprisingly hawkish European Central Bank meeting triggered a broad repricing across European rates. Volatility from that move spread into sterling markets, pressuring positions including curve steepeners and trades aimed at gains in the front end of the UK rates curve.
As some moves in the front end and along the UK yield curve turned against them, investors cut back or closed positions. Hedgeweek reports that activity remains cautious as hedge funds weigh fresh opportunities against the risk of further sharp changes in central-bank rate expectations.
The report also points to subsequent central-bank meetings from the US Federal Reserve and the Bank of England, which have provided traders with more clarity. For hedge funds running relative-value and macro strategies, the rapid reversal highlights sensitivity to shifting outlooks across the ECB, Fed, and BoE.