Last week, in the immediate aftermath of the basis trade implosion, we predicted that “any minute” now we are going to start hearing about catastrophic losses at multi-strat hedge funds.
Any minute now we are going to start hearing about catastrophic losses at multi strat hedge funds
— zerohedge (@zerohedge) April 9, 2025
In retrospect we had to wait quite a few minutes, almost a week’s worth, but finally the first victim of the basis trade blow up has emerged.
According to Bloomberg, hedge fund Alphadyne Asset Management, which manages about $10 billion and specializes in macro and fixed-income relative value trading, lost hundreds of millions of dollars last week, accelerating its decline for the month of April as Trump’s trade war sparked a historic collapse in the basis trade as we described last week.
The flagship Alphadyne International Fund lost 10% this month through Friday, Bloomberg reported citing people with knowledge of the matter. The firm’s “relative value bets”, which is a polite way of saying basis trades, caused much of the loss, and wrong-way wagers on Japanese assets contributed to the decline.
Alphadyne’s main fund had already declined 2.4% during the first week of April, and with last week’s jarring losses, which are staggering for a “hedged” relative value fund (think LTCM) it’s down about 8% this year.
Alphadyne joins a raft of basis traders traders and hedge fund strategies struggling amid challenging conditions this month. Tudor trader Alexander Phillips lost about $140 million in April through earlier last week, erasing his pre-April gains for 2025. Meanwhile, Eisler Capital portfolio manager Barry Piafsky and his team were stopped out from trading after they lost millions of dollars during the ongoing market selloff.
The upheaval from Trump’s tariffs sent long-term bond yields surging last week, hurting popular and highly leveraged hedge fund trades in bond markets, including the swap-spread widener and basis trades.
This is mindboggling: the “big 6” multi-strat hedge funds have $1.5 trillion in 2024 regulatory assets between them (up from $1.2 trillion in 2023) much of it invested in just one trade: Treasury basis https://t.co/yJYBUpTCyP pic.twitter.com/VQRaXpPQFs
— zerohedge (@zerohedge) March 27, 2025
Yen rates traders have also suffered widespread losses as Japan’s yield curve kept on steepening after Trump paused his threat of reciprocal tariffs on US trading partners, with the 5/30s curve approaching record levels.
The widely held consensus trade had been a wager on the Bank of Japan raising rates to help flatten the yield curve.
Instead, economists now worry that an appreciating yen could squeeze profits for Japan’s exporters, cool import prices, curb domestic investment and weaken wage growth — posing a challenge for the central bank to stay on a tightening path.
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