The trade is essentially a reversal of the war premium across asset classes: long bonds, short dollar, long Asian equities and currencies against a backdrop of fading Fed hike expectations. The two-year Treasury yield has the most immediate read-through, having dropped to 4.02% on Monday as crude fell and rate hike bets were trimmed. The yen is the currency trade attracting the most explicit conviction, with Japan’s energy import dependency having made it one of the cleaner expressions of Hormuz disruption risk. Southeast Asian equities, having underperformed sharply during the conflict, offer the most asymmetric upside if the deal holds, though fund managers are candid that AI remains the dominant theme absorbing capital. Crypto has bounced but remains nearly 50% below its October record, with positioning cautious pending the Friday signing.
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Hedge funds are rotating into short-dated Treasuries, Asian currencies and beaten-down equities as the US-Iran deal deflates war-risk premiums and eases pressure on Federal Reserve rate expectations.
Summary:
Source: Bloomberg (gated), citing fund managers across the US, Singapore, Sydney and Hong Kong
- Grey Value Management and Reed Capital Partners are buying shorter-dated US Treasuries, with the two-year yield falling to 4.02% and the 10-year to 4.43% on Monday
- Reed Capital is also buying the yen, citing both dollar overvaluation and a structurally positive outlook for Japan’s currency following its energy-import penalty during the conflict
- GAO Capital sees opportunities in Asian consumer companies exposed to palm oil and other commodity input costs, including instant noodle producers
- Golden Horse Fund Management favours Asian energy importers including Japan, Korea and India, and sees re-rating potential in Middle East-exposed industrials, logistics and Hormuz-linked shipping names
- Vantage Point Asset Management views Southeast Asian equities as the most unloved and potentially most asymmetric trade, though AI remains the dominant theme for the region
- Bitcoin climbed to a near two-week high after the deal announcement but remains around 48% below its October record peak, with crypto investors staying cautious ahead of Friday’s signing
Global hedge funds are moving quickly to unwind positions built around the Iran war premium, rotating into assets that underperformed during months of supply disruption and repricing those most directly exposed to easing energy costs and falling inflation expectations.
The playbook being dusted off is, by most accounts, simply a return to what was working before the conflict began in late February. Short-dated US Treasuries are among the earliest beneficiaries, with two-year yields dropping to 4.02% on Monday as crude prices fell and traders trimmed expectations for further Federal Reserve tightening. With the spread between two-year and ten-year notes sitting at around 40 basis points, several managers see no incentive to extend duration or move down the credit quality curve in search of yield.
The dollar is losing appeal as the geopolitical risk premium that sustained demand for the world’s reserve currency begins to deflate. The yen is attracting the most explicit buying interest among emerging and developed-market currencies, given Japan’s particular vulnerability to imported energy costs during the conflict. Reed Capital, managing $600 million from Singapore, is positioned for a structurally positive yen outlook alongside dollar weakness.
In Asian equities, the opportunity set is being carved up along sector lines. Energy importers, including Japan, Korea and India, are favoured for current account relief. Southeast Asian markets, which have been among the worst performers globally during the conflict, are attracting contrarian interest, though fund managers are clear-eyed that AI-related themes continue to dominate capital allocation across the region. Consumer names with commodity input cost sensitivity, a category that stretches from instant noodle producers to palm oil-exposed manufacturers, are also on the buy list.
Crypto has bounced, with Bitcoin recovering to near a two-week high, but positioning remains tentative. Most managers are waiting for the formal signing on Friday before committing further.