Deutsche Bank suggests some traders did very well yesterday
Macro traders were already having a good year, even before the chaos surrounding sterling and the gilt market this week. Depending upon how they were positioned, yesterday's events could have made that year substantially better - or worse.
In a note published this morning, Deutsche Bank strategist Jim Reid makes the observation summarized in the following tweet. "It’s another stunning development to a stunning year," he adds.
How could you have earned 42% return yday from AA-rated investment?, DB's Reid asks & explains: Simple. At anytime between 8-11am all you had to do was buy 40y Gilts before BoE effectively restarted QE only days before QT was suppose to start (it’s been postponed until Halloween) pic.twitter.com/eODhv3qvtB— Holger Zschaepitz (@Schuldensuehner) September 29, 2022
Coming at the very end of the third quarter and in reasonable proximity to the time when senior staff start thinking about the bonus pool, an enormous boost to PnL at this point might be expected to be reflected in the bonuses of anyone responsible for the fortuitous positioning.
However, this assumes that banks weren't wrongly positioned for the Bank of England's intervention, which seems more than equally likely.
Reid confesses that even though he's "always felt that this debt supercycle would end up with central banks doing QE even if interest rates were positive," because, "the economy can be growing and seeing inflation at a point when investors baulk at funding all the debt," he was surprised by the events that transpired. However, he adds that it may not be the last time it happens, "given how much debt there is and how much there's likely to be going forward." Traders who missed out on yesterday's giveaway will be keen to ensure they're positioned for the next one.
In the meantime, Reid says macro traders and strategists are also developing a poignant sideline as friends and family fret about their mortgages. "I had my worst nightmare yesterday. One of my wife's friends, who vaguely knows I work in financial markets, urgently contacted me for mortgage advice," he wrote yesterday morning. "She needed to make a decision within hours on what mortgage to take out from a selection of unpalatable options here in the UK."
Advising investors is one thing, said Reid. Advising individuals on actions that could influence their personal financial futures feels much more "dangerous."
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