Savvy traders bet on return to inflation but euro fears linger

SOPHISTICATED investors are betting on a return to inflation by shorting bond futures, according to Gibraltar-based trading outfit ProSpreads.

ProSpreads, whose clients include numerous City executives, said 96 per cent of its customers holding fixed income positions were net short. The spreadbetting moves of savvy individuals are watched with interest as they often precede shifts in the portfolios of larger, more unwieldy investors such as pension funds.

Simon Brown, chief executive of ProSpreads, said: “They’re selling government bonds because they feel inflation is looming.”

The numbers follow a warning from the Organisation for Economic Co-operation and Development that UK interest rates will need to rise by 0.5 per cent this year as the region returns to growth and the prices of goods rise more steeply. After inflation hit 3.7 per cent for April, the OECD said the Bank of England may have to react “soon” by hiking rates.

While ProSpreads’ users were concerned about the prospect of inflation, they were also short the euro and the pound against the dollar due to more immediate fears over the Eurozone’s borrowing woes. Clients holding share indices were also 65 per cent short, suggesting lingering caution over world growth.