How steepener trades burned hedge funds, and what happened next

Delays to central bank rate cuts torpedo popular trade, causing funds to pull capital – to the chagrin of sell-side desks

At a townhall meeting in the first quarter of this year, Citi’s head of rates Deirdre Dunn shared some cautionary advice with traders on how to deal with dwindling client activity in the rates market.

Hedge funds, stinging from earlier bad bets on expected central bank rate cuts, had pulled back from the market. With many of their most active clients sitting on the sidelines, sell-side market-makers were left to twiddle their thumbs.

As a result, Dunn warned her team against “overtrading” during

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