carry trade

The hawkish surprise from the US Federal Reserve on Wednesday has dramatically undermined the carry trade for high interest countries. James Mackintosh, investment editor, looks at how this will hurt both developed and emerging markets.

Dollars and yen piling upRemember the yen carry trade? Sure you do: when lots of smart people took advantage of Japan’s low interest rate to borrow and then invest in currencies with higher interest rates? (Ah, that carry trade.)

Well, with Japan’s new aggressive monetary stance, it’s back (in a way). And that should force EM currencies to appreciate, as before, shouldn’t it?

Perhaps not, according to Bhanu Banweja of UBS. Continue reading »

Mrs Watanabe is back. The fabled Japanese housewife investor, burned by her love affair with the Brazilian real, appeared to have rediscovered a taste for the carry trade.

The object of her affection this time? The Turkish lira.

The appetite for Turkish and lira-linked assets from yield-hungry Japanese retail investors has grown by leaps and bounds since the start of the year. From just $136m in 2010, lira-denominated Uridashi bond issuance – as foreign-currency debt sold to Japanese retail investors is called – reached nearly $2bn in the first six months of this year. Continue reading »