Fed ‘Manipulation’ Crushes Can’t-Miss Trade in U.S. Bond Market
- Fed is one announcement from ‘crushing your trade’: Incapital
- Caution toward steepener bets takes hold as FOMC meeting looms
The Federal Reserve’s outsized presence in markets, which began with the 2008 financial crisis, shows no signs of ending.
Photographer: Stefani Reynolds/BloombergThe Federal Reserve is casting a long shadow over the world’s biggest bond market, derailing a classic recovery trade and underscoring how an era of central-bank intervention will reverberate for some time to come.
The mere hint that the Fed may take additional steps to hold down long-term rates is causing Treasury traders to scale back so-called steepener bets -- a tried-and-true strategy that has generated big profits over the years as economic rebounds pushed yields higher. Barclays Plc is keeping a lid on the size of its positions. Incapital is using options, rather than actual bonds, for a hedged -- and more cautious -- riff on the trade. And Nick Maroutsos of Janus Henderson Investors says some “could get flattened” by the wager.