Hedge funds revive pre-war trades after US-Iran peace deal

Hedge funds are returning to trading strategies reduced during the US-Iran confrontation, increasing positions in short-dated US Treasuries, Asian equities and selected consumer and emerging-market currencies after a peace agreement lowered geopolitical risk and pushed oil prices down. The agreement is due to be formally signed this week.

Markets reacted with gains in US equities and government bonds as traders reduced expectations for further Federal Reserve tightening. Two-year Treasury yields fell to about 4.02% and benchmark 10-year yields slid to roughly 4.43%. The US dollar weakened as demand for safe-haven assets eased.

Several funds highlighted short-dated Treasuries. Grey Value Management and Reed Capital Partners increased exposure to shorter-duration US government debt. Steven Grey, chief investment officer at Grey Value Management, described the current yield curve as offering little incentive to extend duration or assume extra credit risk.

Currency strategies were adjusted as geopolitical risk receded. Some managers expect the dollar to lose momentum and increased positions in the Japanese yen. Gerald Gan, chief investment officer at Reed Capital, noted favourable long-term fundamentals for the yen and that the firm has been raising its exposure.

Asian markets are seen as beneficiaries of lower energy costs because many countries rely on imported oil. Hedge funds are targeting Southeast Asian equities after those markets underperformed during the conflict. India and Indonesia have been among the weakest equity markets this year and their currencies fell sharply.

Managers are also revisiting consumer and commodity-sensitive sectors. Chauwei Yak, chief executive of GAO Capital, pointed to companies exposed to agricultural inputs, such as instant noodle makers that use palm oil, which could see margin relief if energy and commodity costs stabilise.

Risk appetite returned to digital assets. Bitcoin rebounded from recent lows and some crypto-focused investors have redeployed capital selectively. Richard Galvin, executive chairman of crypto investment firm DACM, has invested in cryptocurrency projects tied to artificial intelligence while keeping a cautious stance until the agreement is finalised.

Despite renewed activity, many hedge funds remain selective. Managers are balancing lower energy prices against the possibility that geopolitical tensions could rise again or that macroeconomic shifts will alter policy expectations. Thomas Hayes, chairman of Great Hill Capital, described the repositioning as measured, with firms monitoring the formal completion of the agreement before widening bets.

Funds are reallocating capital across fixed income, currencies, regional equities and specific consumer names while tracking policy moves and energy markets as they wait for the agreement to be finalised.