Chris Rokos’s hedge fund has racked up profits of more than $1bn this year after a bet on US interest rates paid off.
Rokos Capital Management, which manages about $16bn of assets, is up 8.8 per cent in 2024 to Friday last week, according to a person who has seen the performance numbers. The company has told investors that the gains were largely driven by the recent sell-off in bond markets, the person said.
The firm declined to comment.
Rokos, a billionaire star trader and co-founder of hedge fund Brevan Howard who launched his own firm in 2015, has a reputation for taking punchy bets on bonds that have often yielded big gains for investors but have occasionally come unstuck.
This year he has profited as the market, which had been expecting aggressive interest rate cuts by the US Federal Reserve this year following large falls in inflation, has started to accept the central bank’s narrative that borrowing costs may not fall so far or as fast.
In December, traders were pricing in roughly six quarter-point rate cuts in 2024 from the current level of 5.25 per cent to 5.5 per cent, double the three signposted by Fed officials. But markets have dialled back their expectations following pushback from the central bank and a run of solid economic data that suggests the US economy is not sliding into a downturn.
Figures released this month showed inflation eased less than expected to an annual pace of 3.1 per cent in January, leading investors to ditch bets that borrowing costs would fall as soon as May.
Markets are currently pricing in three or four cuts by the end of this year, with the first move in June.
Two-year Treasury yields, which closely track interest rate expectations, have climbed to 4.6 per cent from less than 4.2 per cent in early January. Bond yields move inversely to prices.
The figures come after a rollercoaster 2023 for Rokos. He was hard hit in the market turmoil of March, when bond prices rocketed following the collapse of Silicon Valley Bank. But he rebounded to finish the year in the black, outperforming macro hedge fund rivals Brevan Howard and Caxton last year, delivering 8.8 per cent for the year.
Brevan Howard’s flagship fund was down 2.1 per cent while its Alpha Strategies fund was up 2.4 per cent, according to people who have seen the figures. Caxton’s Macro fund was down 9.2 per cent last year, while its flagship Global Investments fund lost about 1 per cent, investors said.
Rokos made big gains in 2020 during the early stages of the coronavirus pandemic, but late the following year he was wrongfooted by the sell-off in short-term government debt, as investors began to panic that rates would have to rise faster than first thought. However, the following year he made more than 50 per cent.