Carry Trades
Comment of the Day

January 15 2021

Commentary by Eoin Treacy

Carry Trades

Eoin Treacy's view

There is nothing in the financial markets that can’t be made better with leverage. That’s the foundation most trading operations are based on. One of the most common trade patterns is to source cheap funding in a currency which is depreciating in value. That way when it comes to paying back the loan, you get to keep the profit on the currency trade as well as any gain from the assets you invested in.

Japan’s zero interest rates made it an ideal candidate for carry trades but the propensity for the Yen to strengthen meant that short yen carry trades tended to be rather volatile. It was common in the decade up to the introduction of Abenomics in early 2012 for unwinding of carry trades to contribute to profit taking across global markets.

As interest rates have trended towards zero across the world the opportunity to access cheap funding in a wide array of currencies has never been greater. The challenge today is to find the currency most likely to decline versus assets with high growth and yield potential.

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