Earlier this month, a sudden and violent sell-off in global stocks was attributed to the unwinding of the Yen carry trade, i.e. when investors borrow Yen to buy other assets, like stocks.
After the Bank of Japan surprised markets with monetary policies that were more aggressive than expected, investors panicked and reversed the carry by selling stocks to pay back their Yen.
The panic was short-lived, but also may not be over. The Yen carry trade is huge and was built up over many years. It was not totally “unwound” in a matter of days, rather it’s likely only the weakest positions were shaken out initially. So, we may not have heard the last of the carry trade.
Regardless, there are already whispers about the next carry trade to unwind and concerns about market impact. Specifically, some investors are concerned about a carry trade in the Chinese Yuan. While the Yuan carry has gained popularity, it may not unwind how many expect…
Read the full write-up at seekingalpha.com.
The Bellwether Blog 