Inflation shock upends Aussie dollar rates flatteners
Hedge funds’ front-end curve trades stopped out as Iran conflict drove RBA terminal rate pricing higher
Hedge funds were stopped out of Australian dollar interest rate swap curve flatteners earlier in March after the conflict in the Gulf stoked inflation expectations and sent Reserve Bank of Australia (RBA) terminal rate pricing sharply higher.
The one-year versus two-year swap spread widened from around 4 basis points on March 3 to a peak of 12bp on March 9, as two-year rates repriced faster than one-year rates.
The move punished a popular positioning structure among hedge funds and asset managers
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