Spooked by a flurry of hotter-than-expected U.S. economic and inflation data last month, investors are reviving trading strategies that bet on a higher peak in interest rates.
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.
With higher inflation expectations lifting short-term bond yields higher than those at the longer end, some investors are wary of committing to debt maturities at the long end of the bond market yield curve. Outside of fixed income, adding exposure to commodities could be a way to take advantage of the demand behind the current impulse in global economies.
In the market, pricing has moved in expectation of more aggressive rate hikes as the latest economic data reflects a tight job market and inflation remaining high, reviving fears the Fed may need to resort once again to the same chunky interest rate hikes that hammered stocks and bonds last year.
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