The Macro Trading Floor The New Fed vs The Good Old Bond Market
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Jan 30, 2026 A deep dive into how a new Fed chair could shift US policy and reshape global bond incentives. Conversation on drivers of recent dollar volatility and who sells dollars to hedge risks. Discussion of derivatives strategies to keep US exposure while reducing cash. Exploration of Japan’s role, low bond volatility, repatriation flows, and how modest trades can move small markets.
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Career Risk Is Driving Hedging Decisions
- Career-risk incentives flipped: unhedged US exposure used to be rewarded but now unhedged managers risk getting fired if the dollar falls.
- This incentive shift drives conservative institutions toward hedging even if they want US asset exposure.
Reduce USD Custody With Derivatives
- Use futures and swaps to retain US economic exposure while reducing USD cash balances and custody risk.
- Prefer equity swaps with non-US banks to avoid counterparty currency custody concerns when possible.
Fiscal Looseness Favors A Softer Dollar
- Loose US fiscal policy and constrained Fed tightening create a reflationary backdrop that favors a weaker dollar.
- Political limits on rate hikes make cuts more feasible than hikes, skewing monetary policy toward dollar weakness.
