Aurelia Butler

NEW YORK (Reuters) -Citadel’s flagship fund, Wellington, rose 2% in April, overcoming a month of pain for the S&P 500, a source familiar with the matter said.Sticky inflation data unveiled in April spread fears that the Federal Reserve might hold interest rates higher for longer than anticipated, driving stocks down. The S&P 500 fell 4.2% in the month.From January through April, the hedge fund founded by Ken Griffin was up 7.8%, also beating the benchmark index, the source added.Other Citadel investment strategies also posted strong performance last month. Its Tactical Trading and Global Equities both rose 3.3% each. They ended April with gains of 11.2% and 9.9% year-to-date, respectively. The Global Fixed Income strategy was roughly flat last month, and was up 2% in the year to April 30.The firm, which declined to comment, manages $61 billion in assets.At least one more multi-strategy hedge fund, which use a variety of investment strategies, managed by multiple portfolio managers, also beat the S&P in April.Schonfeld’s flagship fund Strategic Partners was up 0.5% in April, while the firm’s Fundamental Equity fund rose 0.2%, according to preliminary estimates, a source familiar with the matter said. In the year to April 30, the funds posted gains of 6.8% and 6.2%. More

(Reuters) – Spreads on U.S. high yield bonds, or the premium companies pay over U.S. Treasuries, remain tight despite a pick-up in distress within the asset class, as investors see the majority of issuers weathering higher-for-longer interest rates.Elevated rates and persistent inflation have eaten into the bottom lines of many U.S. corporate borrowers, particularly those with high leverage and lower credit ratings.The dollar volume of defaulted debt rose to over $33 billion in the first quarter from roughly $19 billion in the fourth quarter of 2023, according to a Monday report by Moody’s (NYSE:MCO) Ratings.In addition, the default rate among junk-rated borrowers came in at 5.8% over the last 12 months, its highest in three years, Moody’s noted.High-yield bond spreads widened 3 basis points on May 1 but they have tightened 33 basis points so far this year, according to the ICE BofA High Yield index.Distressed exchanges continue to play a significant role in these defaults. There have been $12.8 billion in distressed exchanges so far this year, on pace to beat out the $35.2 billion record high reached in 2008, according to a Thursday research note by JPMorgan.The volume of distressed exchanges so far in 2024 accounts for half of all default volume, also on pace to be the highest percentage on record. Despite a pickup in distress, U.S. high-yield spreads have narrowed in recent weeks. The ICE BofA High Yield Index Option-Adjusted Spread stood at 3.21% on Wednesday, down 21 basis points from their April high of 3.42%. “Some of the companies that have defaulted either technically or actually entered bankruptcy thus far in the credit cycle are the ones that were weaker fundamentally heading into this cycle,” said Sinjin Bowron, portfolio manager and head of high yield and leveraged loan strategies at investment firm Beach Point Capital Management.”So there haven’t been any real surprises in the market yet, and I think that’s one reason why spreads have been generally range-bound over the past several months,” he said.Treasury bonds rallied on Thursday following Fed Chair Jerome Powell’s Wednesday remarks that while the central bank was unlikely to raise rates further, they could potentially remain steady in the 5.25% to 5.50% range that has been in place since July as inflation remains persistent.High-yield bonds have provided a yield to maturity of 8.18% so far this year, according to the S&P U.S. High Yield Corporate Bond Index.”Obviously any increase in default distress is concerning,” said Andrew Bellis, head of private debt at private equity firm Partners Group.”But I think if you have to put it in comparison with where you’re coming from, the overall returns in the asset class are still very attractive,” he said. More

LONDON (Reuters) – Hedge fund Exodus Point was up about 2% for the year to the end of March, according to a letter it sent to investors, benefiting from a bond market basis-trade that has regulators worried about financial stability risks. Basis and rates trading form over a fifth of the trading strategy’s risk allocation at the $11.8 billion fund, the letter seen by Reuters this week showed. Exodus Point is a multi-strategy hedge fund housing many different trading techniques. It employs a pass through fee model where investors cover fund expenses including staffing and technology costs. In addition, investors also pay a 20% performance fee. Multi-strategy hedge funds have had a positive start to 2024, with Exodus Point multi-manager peers like Schonfeld posting a 6.2% performance in its flagship fund and its larger competitor Citadel, with a 5.75% return in its flagship Wellington fund, Reuters reported on April 4.While Exodus Point uses basis and inflation trades in U.S. Treasuries, it also made money from government bond trading in Japan and Europe, the letter showed. Emerging market and trades based off of macro economic drivers contributed the most to the positive performance. This included currency trading in Asia and Latin America, as well as commodities trades in metals and energy, the letter also showed.Despite the fund’s overall positive result, quantitative trading which uses algorithms, detracted, the letter said.Exodus Point did not immediately return a request for comment. Basis trades, a popular trade with the largest hedge funds, exploit the difference between any cash instrument and a derivative based on it – such as the trade which has caught regulators’ attentions, buying U.S. government bonds and selling futures contracts based on them.The Bank for International Settlements warned last year that the huge build-up in speculators’ Treasuries positions “is a financial vulnerability.” More

WASHINGTON (Reuters) – Weaker U.S. productivity gains in the first quarter may challenge the Federal Reserve’s efforts to finish its inflation fight without a painful rise in unemployment, potentially stalling progress on prices absent a further economic slowdown.A jump last year in how much workers produce helped the economy grow fast and hiring remain strong while inflation fell nonetheless. Data for the first three months of 2024, however, showed worker productivity rose at a 0.3% annual pace, compared to increases of more than 3% in the prior three quarters.Unit labor costs, as a result, jumped 4.7%, the fastest in a year, as businesses spread higher wage and benefit payments across a comparatively small boost in what each person produced.Analysts said the first-quarter results don’t on their own disrupt what has been a core reason for optimism that the U.S. was heading for a “soft landing” in which inflation would return to the Fed’s 2% target without the sort of sharp rise in joblessness associated with past battles against rising prices.Productivity numbers are volatile, they noted, and even those reported for the first quarter leave a stronger yearly trend intact with reason to believe there will be further improvements.But it also keeps alive the question of how much the Fed can count on additional improvement in the economy’s ability to supply goods and services to help in the inflation fight, and how much will now rest on curbing demand – potentially dealing a blow to employment in the process.Fed Chair Jerome Powell was sensitive to the issue during a press conference on Wednesday after the Fed held its benchmark interest rate steady in the current 5.25%-5.50% range while acknowledging that improvement in inflation had slowed and would require borrowing costs to remain high.He said he still believes inflation can be returned to the Fed’s target “without significant dislocations in the labor market or elsewhere.”Supply-side improvements, including higher productivity and faster immigration, “really helped inflation come down … I’m not giving up on that. I think it is possible those forces will still work to help us,” Powell said.But, he added, there was no guarantee, and at the very least the process “will take longer than previously expected.”JOBS DATAThe U.S. Labor Department will release its employment report for April on Friday, providing the latest touchpoint for central bankers to assess whether the economy is moving towards a more sustainable pace of job and wage growth, as many feel it is. Results for March from the Job Openings and Labor Turnover Survey, for example, showed balance continuing to emerge between the availability of workers and the demand for them. Economists polled by Reuters expect firms hired an additional 243,000 workers in April, continuing a pandemic-era streak of job gains that a rising number of foreign-born workers has helped sustain even as wage growth moderates. The unemployment rate has been below 4% for 26 months, a run not seen since the late 1960s. The Fed doesn’t want to wreck that streak, and the thinking under Powell has shifted away from what had been a working assumption that a low jobless rate stokes inflation to a more open-ended “show-me” attitude. The approach served the Fed well last year. Inflation fell sharply from the 40-year highs hit in 2022 even though the unemployment rate remained at levels that would, in some assessments of the U.S. economy, have kept price pressures elevated. Even amid calls from top ranking economists that the unemployment rate had to rise for inflation to fall, the central bank unveiled its last rate hike in July. But if “disinflation” loses steam it could make the Fed’s endgame more difficult.For now, Powell said the central bank is content to be patient and allow the current policy rate to do its work.In the opening statement of his press conference on Wednesday, he excluded a phrase he had used in January and March that “it will likely be appropriate to begin dialing back policy restraint at some point this year,” cementing a shift in expectations for steady and substantial rate cuts this year to doubt about whether rates will fall at all. The change in Powell’s language has touched off a mini-cycle of financial tightening across credit markets, with the average rate on a 30-year fixed-rate home mortgage jumping back above 7% and yields on the 2-year U.S. Treasury note, considered a proxy for Fed policy, rising from roughly 4.2% in January to around 5% now.Powell said this week that these trends will all eventually show up in the form of inflation falling towards 2% from a level that, based on the Fed’s preferred inflation measure, was running at 2.7% in March.But how long that journey takes and what happens to workers in the meantime will depend on factors – productivity among them – well outside the central bank’s control.The Fed may not be willing to risk damaging the economy with further rate hikes to achieve the last bit of inflation control. But neither, Powell said, will policymakers rush to cut rates over a modest rise in unemployment.”It would have to be a meaningful thing and get our attention and lead us to think the labor market was really significantly weakening” he said on Wednesday. “A couple of tenths (of a percentage point) in the unemployment rate would probably not do that.” More