Rokos income from rate of interest bets in UK market turmoil

Billionaire dealer Chris Rokos has been among the many main hedge fund managers who’ve profited throughout the disaster gripping UK monetary markets, based on individuals aware of his positioning.

Rokos, whose Rokos Capital Administration is likely one of the world’s largest macro hedge funds with $14.5bn in belongings, has been operating a wager that UK borrowing prices must rise, the individuals mentioned.

The wager, which has not beforehand been reported, has paid off, each as surging inflation has compelled up borrowing prices over the summer time after which following a violent market response to Chancellor Kwasi Kwarteng’s “mini” Price range final month, whose unfunded tax cuts despatched gilt yields surging.

The market turmoil, which was exacerbated by compelled promoting of gilts by pension funds, driving borrowing prices even increased, has delivered positive aspects to various high-profile managers.

Rokos was a co-founder of and star dealer at hedge fund agency Brevan Howard, the place he made billions of {dollars} of income for buyers buying and selling authorities bonds and choices. A specialist in betting on the yield curve, he is likely one of the world’s most intently watched macro merchants.

One other dealer, Crispin Odey, has been shorting long-dated UK debt and sterling for a while, and instructed the Monetary Occasions that such gilt positions have been “the presents that carry on giving”.

Somewhat than betting in opposition to UK authorities bonds, Rokos placed on his place within the rate of interest swap market, which is utilized by establishments akin to banks and pension funds for hedging and industrial property companies for borrowing. The commerce was positioned a while in the past, the individuals mentioned.

UK rate of interest swap charges have climbed sharply this 12 months, even earlier than the “mini” Price range. The five-year swap rose from 3.4 per cent initially of final month to 4.1 per cent on the day previous to Kwarteng’s announcement, earlier than surging to five per cent by the top of the month.

Rokos’s fund, which has already been making massive income from rising authorities bond yields this 12 months, gained 11.5 per cent final month alone and is now up by greater than 35 per cent this 12 months, the individuals mentioned.

Simply previous to Kwarteng’s announcement, the fund was up 10.1 per cent for the month, mentioned an individual who had seen the numbers.

Rokos’s positive aspects follows a tough 2021 through which his fund misplaced round 26 per cent after being hit by a vicious sell-off in short-dated authorities debt.

Earlier this 12 months the agency wrote to buyers, in a letter seen by the Monetary Occasions, that whereas shorter-term borrowing prices had already risen, long run yields “might must rise considerably from right here”.

Rokos declined to remark.

In August the FT reported that massive buyers have been betting on a contemporary surge in UK borrowing prices, on fears that the vitality disaster would drive inflation increased. This week the IMF warned that prime inflation would last more in Britain than in nearly all different superior economies.

Different funds have additionally been capable of revenue within the UK’s market turmoil.

Roy Niederhoffer’s New York-based RG Niederhoffer Capital Administration, a computer-driven agency that made massive positive aspects within the 2008 monetary disaster and which goals to revenue from brief time period volatility, was capable of purchase into each gilts and sterling at low costs throughout the market panic.

Late final month its machine studying fashions, that are used throughout its funds, noticed a possibility when sterling briefly plunged to a file low in Asian buying and selling and acquired in at $1.03. The pound has since recovered to round $1.12.

Niederhoffer’s predominant Diversified fund is up 78 per cent up to now this 12 months whereas its Sensible Alpha fund has gained 28 per cent.

laurence.fletcher@ft.com