(Reuters) – The wild swings in U.K. markets present a “once-in-a-lifetime opportunity” for foreign exchange and bond trades, hedge funds and traders said on Wednesday.
Sterling and UK gilts were hit hard after the Bank of England stepped in to stem a bond market rout triggered by Friday’s mini-budget. The Bank of England says it will buy 65 one billion pounds ($65 billion dollars) of British pounds as needed between now and October Bonds stabilize the market.
Since Friday the UK’s small budget was flagged as 45 billion pounds of unfunded tax cuts, sterling depreciated by 6% and made history New lows, while UK bond prices soared.
Investors who use economic signals to trade government bonds and currencies said Wednesday was a day to go big or go home.
John Floyd was 45 a Forex trader for 45 years and ran his own hedge fund, Floyd Deutsche Capital Management said that one of the UK government’s policies to scale up has created a perfect storm for UK debt and the central bank that intends to raise interest rates but ends up buying bonds. Floyd declined to comment on the amount of funds he manages.
“The macroeconomic and geopolitical environment has provided some of the biggest profit opportunities for the currency space since the early 1970 end of the Bretton Woods system,” said Ferguson Lloyd, referring to the U.S. global conference that established a set of guidelines for the international financial system.
Floyd is long USD, short GBP. He believes Wednesday’s BoE intervention will shake confidence in the pound and “encourage people to look for further weakness.”
“Intervention is only effective if it is consistent with macroeconomic fundamentals,” Floyd said.
“Intervention in the Phnom Penh market to lower interest rates will make financing external deficits more challenging, while currency weakness will act as a balancing mechanism.”
Family Office Investments Portfolio manager John Taylor, a veteran foreign exchange trader, said that when the global financial crisis hit, the volatility he saw was worse than the 2008 trade.
“The problem with the market today is that I don’t see the end of it all, but it started with Brexit — when people thought the world was a thing of the past,” Taylor said.
Taylor says he is short GBP and has been short most of the year. However, even if he has started trading now, he may still have the same view on the pound.
“It’s never too late to short the pound,” he said.
Another unnamed fund with more than $4 billion under management said it was trying to maintain a cautious approach. The fund is short the pound, saying they are not as active today as shorting the pound is a long-term strategy.
YTD, hedge funds that trade on macroeconomic signals are up. According to the HFR Daily Reports Index of Hedge Fund Performance, HFRX averages 6. 47%.