Nick Maroutsos bets that the world's trading is most active, driven by disturbing factors such as the Brexit and European economic growth prospects.currencyThe pair will be relapsed into turmoil.
Marusos said that given the volatility of the euro against the dollar is close to a five-year low, the time for a "cheap hedging" is ripe. Marusos replaces Bill Gross this month and has become renamed Janus Henderson Absolute Return Income OpportunitiesfundChief manager. About three weeks ago, he conducted a straddle trade with options and adjusted the maturity to six months. He also made a similar bet on US Treasury bonds.
The euro position comes down to the belief that the turmoil is coming. Last week, the euro fell to its lowest level in 20 months against the dollar. Marusos expects that the increasingly bleak economic and political situation in Europe will put pressure on the euro and force the European Central Bank to introduce more stimulus measures. Although he said there is room for further declines in the euro, the nature of this straddle-type option position means that if the euro is sharply stronger, the deal will also benefit.
“You spend a few base points a month to execute the deal, and if the volatility soars, our portfolio will benefit,” Marusos said. “The ECB may have to implement some form of balance sheet expansion, all of which point to a surge in euro volatility.”
The bet volatility is designed to protect the portfolio from the volatility of the exchange rate and is consistent with his vision to reduce risk. Last week, the value of the deal as a hedging instrument was fully reflected: the euro hit a low of 1.1177 on March 7th, which is a level not seen since 2017, after the European Central Bank lowered its economic growth.Long andInflation expectations and lowered expectations for tightening policies. This wave of plunge is enough to make the euro against the dollar exchange rate break the 300-400 point range from the beginning of the year to March 6. The narrow trading range makes the currency pair the fastest-season quarter ever recorded.
The news of Brexit will only consolidate Marussos’ view of the euro’s market outlook. In his view, although the pound is a natural choice to bet on the outcome of the Brexit agreement, doing more euro volatility is a relatively cheap option.
The pound is the highest volatility among all G10 currencies. The British parliament voted on Wednesday to avoid a non-agreement to leave the EU, opening the door to delaying the Brexit. At the same time, the implied volatility of the euro for six months is close to the lowest level since 2014.
Marusos also bet that the US bond market will exacerbate turmoil. The benchmark 10-year US Treasury yield in February recorded the smallest monthly trading range since 1979, with a volatility of only 11.6 basis points. Reflecting the expected volatility of the US debtBank of AmericaThe MOVE index is close to the record low of 2017.
In this context, Marusos conducted a one-year straddle-price option for 10-year US Treasury yields about two weeks ago, as the Fed's March meeting approached and global economic growth prospects continued to deteriorate.
"If we are wrong, we will only lose a small part," Marusos said. “But if the volatility of US debt or the euro soars, it will be a good hedge against the entire portfolio.”
(Article source: Gold headline)