Financial Times- A $3bn London hedge fund lost more than a quarter of its value on Monday as it became the biggest victim of the unwinding of a popular Japanese government bond trade.
Endeavour Capital, run by former Salomon Smith Barney fixed-income traders, told investors that it fell 27 per cent as a highly leveraged bet on the spread between short- and long-dated JGBs was hit by contagion from the US financial crisis and domestic worries.
Financial Times- A $3bn London hedge fund lost more than a quarter of its value on Monday as it became the biggest victim of the unwinding of a popular Japanese government bond trade.
Endeavour Capital, run by former Salomon Smith Barney fixed-income traders, told investors that it fell 27 per cent as a highly leveraged bet on the spread between short- and long-dated JGBs was hit by contagion from the US financial crisis and domestic worries.
The loss triggered conditions in bank borrowing agreements, forcing Endeavour to close other trades in an effort to reduce its leverage from 18 times to almost nothing.
Hedge funds scrambled to unwind the so-called "box trade" – betting that 20-year bond and swap spreads would widen as seven-year spreads narrowed – early on Monday when the market moved sharply against them.