Chapter 6

The Bond Trader

Prior to the budget surpluses and the equity bull market of the late 1990s, the trading desks of the big bond houses were the epicenters of financial markets. In the wake of 2008, with the ensuing fiscal deficits and exploding government debt issuance, fixed income markets have once again taken center stage.

“The Bond Trader” generated strong positive performance for his investors through 2008 and 2009. For over two decades, he has stuck to his guns, specializing in fixed income and never posting a single losing year. He is very simply best of breed, although his process is not easy to pin down because of its extreme flexibility and adaptability to different conditions. He implements different processes and risk management approaches depending on the prevailing market environment, and most efforts to understand how he does what he does result in a simple: “It depends.” As Keynes once said: “When the facts change, I change my mind. What do you do, sir?”

The Bond Trader exemplifies macro trading at its finest: flexible, extremely liquid, hyperfocused on the downside risks, and adaptive to changing facts and market conditions. Where many hedge fund investors in recent years have sought to understand strategies based on narrowly defined criteria, The Bond Trader proves that sometimes, talent is unquantifiable.

As we sat down for breakfast, he placed his two BlackBerries on the table, remaining fully wired into markets almost intravenously. Although the current ...

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