Balyasny Asset Management has warned that the Bank of England's recent intervention to control bond yields could jeopardize its efforts to contain inflation and prevent a decline in the value of the pound.
The BOE's decision to avoid a potential crash in the gilt market by pledging unlimited purchases of long-dated bonds has stabilized the markets. However, $16.6 billion money manager said the move is a demonstration of the government's "policy misstep".
In a mini budget last week, Chancellor of the Exchequer Kwasi Kwarteng announced a series of tax cuts. This caused the pound to plunge to a record low against the dollar earlier this week, and the Bank of England had to intervene to prevent a meltdown in the bond market.
According to Balyasny, the BOE is trying to control rates by lowering yields, but this comes at the cost of giving up control of both inflation and the currency.
The spokesman for the hedge fund declined to comment when asked about the situation.
Balyasny, an investment firm that employs dozens of macro traders, predicted that the Fed will implement larger and more front-loaded rate hikes in the future. The firm's hedge fund was up 7.8% for the year through September 23, according to another investor document.
The Bank of England's intervention on Wednesday had an immediate impact on the gilt market, sending 30-year yields to their biggest drop on record. The pound has also since bounced back from lows.
Traders have reduced their bets on aggressive interest rate hikes by the Bank of England, pricing in around 135 basis points of hikes by the next meeting in November. This is down from the 200 basis points that was priced in on Monday.
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