Hedge Fund of Ex-Central Bankers Bets Trump Trade Gone Too Far
This article first appeared on the Bloomberg Terminal (2016-12-07 15:00:00.4 GMT). Reprinted with permission
By Jonas Cho Walsgard
(Bloomberg) — The global bond rout following the victory
of U.S. President-elect Donald Trump is overdone.
Especially the spillover to bond markets outside the U.S
has now opened opportunities to bet on bond yields edging down
again, according to Scandinavian hedge fund Nordkinn Asset
Management, which oversees 6.6 billion kroner ($800 million).
“It’s correct that rates should increase in the U.S. and it
often results in a contagion around the world,” Bjorn Roger
Wilhelmsen, partner at Nordkinn, said in an interview at his
office in Oslo on Monday. “But that contagion has gone too far
because the situation in Europe is completely different from the
Bond investors have lost billions of dollars since Trump
was elected U.S. president in November as the potential effect
of his fiscal and trade policies are weighed up, raising
inflation expectations and pushing up interest rates. That has
seen 10-year U.S. Treasury yields rise to 2.36 percent from 1.85
percent on November 8.
The steepening, especially in the shorter end of the curve
in Germany and Sweden, is an overreaction, according to
Wilhelmsen. Nordkinn’s Fixed Income Macro Fund is betting that
the European Central Bank on Thursday will continue its
expansive monetary policies. The fund is long German and Swedish
government bonds with shorter maturities.
“We believe in more easing,” the 42-year-old said. “We have
a theme: ECB low for longer. ECB will be dovish at the next
meeting. They will announce an extension of QE at least for six
months after March. We don’t believe in tapering now. It’s too
early for that.”
Nordkinn, which started in 2013, focuses on central banks
around the world in a bid to profit from changes to monetary
policy. Wilhelmsen and two of his partners all worked at
Norway’s central bank. The fund has returned 18.5 percent since
inception, but only with a 2 percent volatility.
The fund is also shorting the euro against the Swedish
krona, which looks undervalued, at least short term, and the
Norwegian krone, which is getting support from higher oil
prices, he said. But the fund doesn’t have an active view on the
dollar after exiting long bets in March.
“The dollar doesn’t have that much more to go,” he said.
“It can go a little bit more but most of the potential is taken
out. If the dollar gets too strong it affects Fed’s policies.”