The Yen carry trade blows up

[percysunshine]

The Yen carry trade blew up because the Yen is going up. This forced the margin calls and the forced selling of risk assets. The Yen carry trade has been around for decades, but the currency appreciation is recent;

The mechanics aside, narratives follow the markets...the cause is an unexpected event that the market has not accounted for. The market routinely hedges against everything 'in the news' such as government debt, the economy, inflation, wars ... etc.

It is the unexpected event and the forced liquidations of asset classes that cause things to break. That is why there are conflicting narratives like gold going down in a flight to safety.
Gold is being sold to cover margin calls.


(from RIA)

Yen Carry Trade Blows Up Sparking Global Sell-Off

Uncover the truth behind the Yen Carry Trade and its impact on global markets. Learn how this unexpected event led to a major sell-off.

realinvestmentadvice.com

The Yen Carry Trade​

The Yen carry trade has been going on in the financial markets for decades. It has been a significant driver for hedge funds in leveraging their portfolios to generate higher returns. An elementary example of the Yen carry trade is as follows:

• A hedge fund sells short $10 million in Japanese Government Bonds that yield zero percent. (The hedge fund sold an asset they didn’t own, netting the fund $10 million and effectively shorting the Japanese Yen.)
• The hedge fund then buys $10 million in U.S. Treasuries, yielding 4%, capturing the spread between the bonds.
• Then, the hedge fund leverages that $10 million into $100 million (10x leverage) to buy risk assets.

Now, consider that “yen carry traders” have leveraged highly volatile risk assets like cryptocurrencies, small-cap stocks, mega-cap stocks, and even the Japanese market. The carry trade works well as long as the Japanese Yen does not markedly appreciate, forcing a liquidation of the market leverage.

 

[Cellblock2429]

The Yen carry trade blew up because the Yen is going up. This forced the margin calls and the forced selling of risk assets. The Yen carry trade has been around for decades, but the currency appreciation is recent;

The mechanics aside, narratives follow the markets...the cause is an unexpected event that the market has not accounted for. The market routinely hedges against everything 'in the news' such as government debt, the economy, inflation, wars ... etc.

It is the unexpected event and the forced liquidations of asset classes that cause things to break. That is why there are conflicting narratives like gold going down in a flight to safety.
Gold is being sold to cover margin calls.


(from RIA)

Yen Carry Trade Blows Up Sparking Global Sell-Off

Uncover the truth behind the Yen Carry Trade and its impact on global markets. Learn how this unexpected event led to a major sell-off.

realinvestmentadvice.com

The Yen Carry Trade​

The Yen carry trade has been going on in the financial markets for decades. It has been a significant driver for hedge funds in leveraging their portfolios to generate higher returns. An elementary example of the Yen carry trade is as follows:

• A hedge fund sells short $10 million in Japanese Government Bonds that yield zero percent. (The hedge fund sold an asset they didn’t own, netting the fund $10 million and effectively shorting the Japanese Yen.)
• The hedge fund then buys $10 million in U.S. Treasuries, yielding 4%, capturing the spread between the bonds.
• Then, the hedge fund leverages that $10 million into $100 million (10x leverage) to buy risk assets.

Now, consider that “yen carry traders” have leveraged highly volatile risk assets like cryptocurrencies, small-cap stocks, mega-cap stocks, and even the Japanese market. The carry trade works well as long as the Japanese Yen does not markedly appreciate, forcing a liquidation of the market leverage.

/—-/ I got no yen to trade Japanese currency.

 

[sparky]

Now, consider that “yen carry traders” have leveraged highly volatile risk assets like cryptocurrencies, small-cap stocks, mega-cap stocks, and even the Japanese market.

what of the BRICS assuming global fiat status Percy?

~S~

 

[percysunshine]

what of the BRICS assuming global fiat status Percy?

~S~

US Treasury markets indicate US govt debt is where people are putting their assets.

10-year Treasury yield falls below 4% for the first time since February​

https://www.cnbc.com/2024/08/01/us-treasurys-investors-weigh-interest-rate-outlook.html

From a practical standpoint, people trade in dollars because the US economy is the largest in the world and it is convenient.