Hedge Fund Up 33% Riding Bond Rally Preps for a 2020 Downturn

(Bloomberg) -- A macro hedge-fund manager who netted 33% riding the wild bull market in bonds is tuning out warnings that it’s running out of steam.

Said Haidar is bidding up short- to medium-term government bonds in a bet that the Federal Reserve will likely acquiesce to market demands for up to three rate cuts this year. The stimulus may deliver a sugar high to stocks and credit before the risk rally and business cycle falters in 2020, according to the CEO of Haidar Capital Management. That’s why he’s sticking with fixed income.

“If the Fed is starting to cut because we’re entering into a material slowdown, that isn’t enough to support the equity market in a big slowdown,” said Haidar who manages $550 million in assets from New York. “Which one do you want to be long: The one that pays you the fixed coupon or the one with the uncertain cash flows that are getting marked lower over time?”

The winning formula for the 58-year old has been timing the global monetary pivot. Taking long exposures from the U.S., southern Europe to Australia, Haidar’s Jupiter Fund returned an estimated 33% this year, according to a person familiar with the matter who declined to be identified as the information is private. Haidar declined to comment on fund performance.

Hedge funds that bet on macroeconomic shifts around the world are up an average 5.5% in 2019, according to Eurekahedge Pte Ltd, lagging behind the 10.6% gain for equity-long funds, as well as event-driven funds and trend-followers.

Fed Chairman Jerome Powell signaled Wednesday that rates are headed lower by at least a quarter-point in July, but stronger-than-expected data on U.S. jobs and inflation have clouded the case for prolonged monetary easing.

Everything Rally

Wall Street has struggled to make peace with the twin rally in bonds and risk assets as global stocks add $10 trillion in value and the U.S. yield curve signals a looming downturn. Credit Suisse Group AG and UBS Asset Management have recently sounded the alarm on the dovish herd in markets, given the margin for disappointment on the U.S. rate path.

Many of Haidar’s fast-money peers have been caught off-guard by the extended Treasury rally, with non-commercial traders consistently bearish on the 10-year note, according to Commodity Futures Trading Commission data.

By rights, the Fed has little case to ease with America’s unemployment rate near a 50-year low, Haidar says. But the ex-quant at Lehman Brothers expects U.S. policy makers to follow developed peers on a prolonged easing trajectory, spooked by fears of global deflation.

“The Fed is terribly afraid of what’s happened already in Japan and Europe,” he said.

All told, Haidar expects the Treasury curve to steepen as front-end rates plunge with the two-year yield potentially dropping below 1% from 1.83% currently, he says. In Europe, he’s still bullish on longer-dated securities, and wagering on an ever-flatter curve in the region, Australia and New Zealand.

The firm is broadly neutral on equities since the May breakdown in U.S.-China trade talks. Haidar sees the S&P rising to as high as 3,200 by the end of the year, before potentially snapping along with credit in 2020.

“All throughout the post-global financial crisis period, we’ve seen that monetary policy has trumped economic data weakness -- but the monetary policy response is getting more and more muted,” he said. “People are still trading like it’s going to be enough to levitate all these asset markets.”

To contact the reporter on this story: Justina Lee in London at jlee1489@bloomberg.net

To contact the editors responsible for this story: Blaise Robinson at brobinson58@bloomberg.net, Sid Verma, Cecile Gutscher

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