Global hedge funds are preparing for potential market turbulence as speculation mounts that Donald Trump may push Federal Reserve Chair Jerome Powell to leave office before his term ends in 2026, with managers favouring short-duration bonds, convertibles, and dollar shorts, according to a report by Reuters.
Despite Trump denying reports that he is planning to dismiss Powell, markets reacted sharply, with the US dollar briefly dropping and long-dated Treasury yields climbing.
In response, hedge funds are mapping out macro and relative value strategies that could benefit if a leadership shake-up at the Fed leads to looser monetary policy and rising inflation.
RBC BlueBay Asset Management, a macro-focused fund under the $491bn RBC Global Asset Management umbrella, favours a curve-steepening trade: buying two-year Treasuries while shorting 30-year bonds. CIO Mark Dowding expects short-dated yields to fall if a new Fed chair is pressured to cut rates quickly, while longer-dated yields could rise amid fears of diminished Fed independence and medium-term inflation risks.
Fourier Asset Management, a $10m convertible bond specialist, is focusing on convertible debt from US crypto exchange Coinbase. CIO Orlando Gemes said the fund prefers the 2026 bond, which converts at $370.45, expecting convertibles to gain value if rate cuts materialise. He warned, however, that Powell’s ouster would reinforce the inflationary tilt of Trump-era policies.
Coloma Capital Futures, a CTA firm, is eyeing currency markets. Founder David Burkart sees a Powell departure as dollar-negative, predicting the dollar index could drop to 90 – or even 80 – due to narrowing rate differentials and rising U.S. fiscal risks.
Union Bancaire Privée (UBP), which runs a long-short Japan equity strategy, is positioning defensively on Japanese exporters. Portfolio manager Zuhair Khan expects the yen to strengthen and local exporters without overseas manufacturing exposure to underperform.
