Brevan Howard, an $11 billion hedge fund, is betting on volatility in the world’s most important market

A
trader talks on two phones during a Spanish Treasury bills
auction at a private bank in Madrid, April 17, 2012.
REUTERS/Andrea Comas

Brevan Howard, the London-based hedge fund run by billionaire
Alan Howard, is launching a new fund to bet on an increase in
volatility in the US Treasury market. 

The fund, called the Brevan Howard CMS Curve Cap Master Fund,
will be led by senior trader Rishi Shah, who has been with the
firm since 2010 in Geneva and New York, according to documents
seen by Business Insider.

The new fund will use what are called constant
maturity swap curve caps to bet on both a steepening of the US
yield curve and an increase in curve volatility.

In simple terms, the yield curve shows the difference
between yields on short term government debt and long term
government debt. The smaller the difference, the flatter the
curve. 

Interest rate policy and government bond buying have
combined to both flatten the curve and reduce volatility.

Brevan Howard is betting that’s going to reverse
as central banks start to shrink their balance
sheets and uncertainty over the leadership of the Fed
circulates. A spokesman for the firm declined to
comment. 

Some of the details of the fund launch were previously

reported by Bloomberg. 

The US government bond market makes up around 30% of the
fixed-income market, according
to the
Securities Industry and Financial Markets Association and
American Bankers Association. In a letter to the Securities
and Exchange Commission last year, they said the Treasury market
is 
“the most important global benchmark for
pricing and hedging spread asset classes and is a key
transmission mechanism for US monetary policy.”

As of August, Brevan Howard managed about $11.1
billion firmwide,
Business Insider previously reported. That’s down from
about
 $40 billion in 2013.

The firm has in recent months been launching new
strategies, including one managed by founder Alan
Howard. 
The flagship fund fell
4.61% this year through September, Business Insider
reported.