How a popular trade collapsed — and why it matters
Summary
TLDRこのビデオスクリプトでは、最近の市場変動の中で注目される円キャリートレードについて分析しています。キャリートレードは、金利が低い通貨で借入し、金利が高い通貨に投資する戦略ですが、最近は日本銀行の金利上昇と米国経済の懸念により、その利差が狭まり、市場への影響が大きくなったと語られています。ゲストは、このトレンドがどのように市場に影響を与え、今後の動向について議論しています。
Takeaways
- 📈 キャリートレードは、金利が低い通貨で借入し、金利が高い通貨に投資する戦略です。
- 🌐 円キャリートレードが世界的に注目されるようになった理由は、市場の変動性と投資家への影響です。
- 💡 キャリートレードが崩壊する要因は、日本銀行の金利上昇と米国経済活動の懸念による金利差の縮小です。
- 📉 市場におけるキャリートレードの崩壊は、非常に短期間で急速に進み、市場への影響が大きかったことを示しています。
- 🔍 2023年に急成長したキャリートレードは、多角的な戦略の中で最高のsharpe比のトレードの一つでした。
- 🏦 銀行やヘッジファンド、CTAなど、さまざまな投資家がキャリートレードに関与していることが明らかです。
- 📊 2023年初頭には、マクロ経済の見方とインフレの展望に基づいて、キャリートレードのポジションが急増しました。
- 📈 キャリートレードの利益は、金利差の利得に加えて、為替レートの変動による利益も含まれます。
- 🌪️ 市場の変動性と関連性により、キャリートレードの崩壊は他の市場にも影響を及ぼした可能性があります。
- 🗓️ 米国の経済成長の見方や日本銀行の金利方針の変更は、キャリートレードの再評価に影響を与える要因です。
- 🌐 キャリートレードは、特定の通貨に限定されるわけではなく、金利差が存在する限り市場には残ります。
Q & A
円キャリートレードとはどのような戦略ですか?
-円キャリートレードは、低金利通貨である円を借りて、高金利通貨に投資する戦略です。金利差のスプレッドを利用して利益を得ることができます。
円キャリートレードが崩れた理由は何ですか?
-円キャリートレードが崩れた理由は、日本銀行が金利を上げる動きがあり、アメリカの経済活動に対する懸念が高まったことです。これにより、円とドルの金利差が狭まり、円の評価が引き起こされました。
キャリートレードがグローバル市場に与える影響とは?
-キャリートレードが崩れると、関連する為替や投資ポートフォリオに大きな影響を及ぼし、市場の不安定化を招くことがあります。
2023年のキャリートレードの特徴は何でしたか?
-2023年には、キャリートレードが特に人気があり、その戦略を採用する資金が多かったため、市場において非常に集約化されていました。
キャリートレードのリスク管理モデルとしてVARとは何を意味しますか?
-VARとは、Value at Riskの略で、多くのファンドがポートフォリオの最大引き下げを管理するために使用するリスク管理モデルです。
キャリートレードの解体が株式市場の不安定化にどのように影響していますか?
-キャリートレードの解体は、関連するポートフォリオの他の部分にも影響を及ぼし、株式市場を含む他の市場において広範な影響を及ぼしている可能性があります。
2023年のキャリートレードにおける日本円の役割とは何でしたか?
-2023年のキャリートレードでは、日本円が低金利通貨として借り入れの主要な通貨として機能しており、投資家はそれを利用して高金利通貨に投資していました。
キャリートレードの解体が示す市場の脆弱性とは何ですか?
-キャリートレードの解体は、市場が共通の通貨で資金調達し、類似したトレードに集中している場合の市場の脆弱性を示しています。これは、リスク管理の限界に達する速さを増加させる可能性があります。
キャリートレードが再び興味を集めることが可能な条件は何ですか?
-キャリートレードが再び注目されるためには、米国やその他の国におけるマクロ経済状況の変化、特に金利の相対的な位置づけが重要です。また、市場の不安定性や円の実現されたボラティリティが低下することが必要です。
キャリートレードの未来的な展望はどうですか?
-キャリートレードは低金利通貨と高金利通貨の間で資金を移動させる基本的な戦略であり、市場に常に存在するでしょう。しかし、特定の通貨に関連するキャリートレードの人気は、マクロ経済状況や市場の構造によって変わる可能性があります。
このキャリートレードの解体は、他の市場にどのような連鎖的な影響を及ぼしましたか?
-キャリートレードの解体は、特に多角的な運用資金が関与していた場合、他の市場においてリスクを削減する必要性を引き起こし、関連市場に波及効果を及ぼす可能性があります。
キャリートレードの解体が示すリスク管理の課題とは何ですか?
-キャリートレードの解体は、リスク管理においてVARショックに対処するための迅速な対応が求められることを示しており、また、市場の関連性が高い状況下でリスクを管理することの重要性を強調しています。
キャリートレードの解体が示す市場構造の変化とは何ですか?
-キャリートレードの解体は、市場構造が集中化され、特定の通貨や市場に関連するリスクが集約化される傾向があることを示しており、これにより市場の不安定性が高まることがあります。
キャリートレードの解体が示す投資戦略の将来性とは何ですか?
-キャリートレードの解体は、特定の戦略が過度に集約化されると市場の不安定性につながることを示しており、投資家は多様なリスクとリターンのバランスを考慮する必要があることを指摘しています。
Outlines
📉 円キャリートレードの瓦解と市場への影響
市場の不安定化の中で、投資家たちが注目する円キャリートレードについて語る。円キャリートレードとは、低金利の円を借りて高金利通貨に投資する戦略であり、金利差益を得るだけでなく、為替レートの変動からも利益を得られる。しかし、日本銀行の金利引き上げと米国経済の懸念により、この戦略が崩れた経緯と、それがグローバル市場に与える影響について分析している。
📈 キャリートレードの歴史的背景と市場での存在感
キャリートレードが市場に登場してからどのように発展してきたかを振り返り、特に2016年以降のトレンドについて解説している。日本がマイナス金利政策を導入したことで、円がより魅力的な資金供給源となり、2023年にその戦略の使用が高まった理由を探っている。また、レマンショック後の市場動向と比較して、現在の状況を分析している。
🚀 キャリートレードの急激な解体と市場への影響
円キャリートレードが崩れた背景には、日本銀行の金利引き上げと米国経済の減速懸念が重なり、金利差益の縮小が起因であると説明している。その結果、円の評価と関連する為替レートの変動が市場に大きな影響を与え、特に多角的な運用が行われたファンドに影響を及ぼしたと指摘している。
📉 市場の不安定化とキャリートレードの関連性
キャリートレードの解体が株式市場の不安定化に寄与したが、全てがキャリートレードによる影響ではなく、その他の経済的要因も影響していると分析している。キャリートレードの資金供給源としての円の変動が、関連市場に波及効果を生じさせたが、広範な市場動向には他要因も関与していると述べている。
🔍 キャリートレードの未来と市場構造の脆弱性
キャリートレードが崩れた後の市場構造と、その脆弱性についての考察を提供している。市場における資金供給源としての円の役割が変化し、関連する投資ポートフォリオのリスク管理モデルが影響を受けたと分析している。また、市場が共有リスクを持つ構造が、不安定な状況に陥った原因であると指摘している。
🌐 キャリートレードの持続可能性と市場への期待
キャリートレードが崩れた後も、低金利通貨と高金利通貨の間には引き続きキャリートレードの可能性があると前向きに見ている。米国や日本を含むマクロ経済状況の進展に応じて、キャリートレードの関心が再び高まる可能性があると述べている。しかし、市場の不確実性や為替レートの変動が、その再参加を難しくしている現状を指摘している。
Mindmap
Keywords
💡円キャリートレード
💡キャリートレード
💡金利差
💡インフレ
💡リスク管理
💡ポジション解消
💡インストitutional money
💡ヘッジ比率
💡市場の不安定性
💡市場構造
💡リスク溢酬
Highlights
日元利差交易成为投资者关注的焦点。
利差交易策略简介:借低利率货币投资高利率货币以赚取利差。
日元长期低利率使其成为利差交易中的典型低收益货币。
2023年,由于多种宏观因素,日元利差交易策略表现突出。
市场参与者包括对冲基金、CTA和日本机构投资者。
日元利差交易的解除与日本央行的意外加息和美国经济活动担忧有关。
市场对美国经济衰退的担忧导致美债收益率下降。
日元利差交易解除导致市场波动性增加。
VAR冲击导致跨多个投资组合的连锁反应。
日元利差交易的解除对全球宏观基金和小型基金产生压力。
市场结构的脆弱性与日元利差交易的解除有关。
日元利差交易的解除不意味着利差交易策略的终结。
利差交易的未来取决于宏观经济条件和市场波动性。
市场对于日元利差交易的重新参与将取决于市场波动性的降低。
美国经济的展望和全球市场的动态将是影响利差交易的关键因素。
市场结构的内生性和集中性可能导致了市场的脆弱性。
Transcripts
Amid the recent market volatility I'm
suddenly hearing a lot about something I honestly haven't
spent much time on, the yen carry trade, which now seems
to be one of the biggest focal points for investors. So what
is the yen carry trade? Why did it break down? And what
does it all mean for global markets? I'm Allison Nathan
and this is Goldman Sachs Exchanges. Today, I'm speaking to Kamakshya
Trivedi; the head of Global Foreign Exchange,
Interest Rates, and Emerging Market Strategy Research;
and to Praneet Shah, who is co- head of Global G10 FX
Options Trading in our Global Banking and Markets division. Kamakshya, Praneet,
thanks so much for being here today. 2
Kamakshya Trivedi: Thanks for having us, Allison. Praneet Shah: Yes, thank you, Allison.
Allison Nathan: Kamakshya, let's just start on a very basic
level. What are carry trades? How do they work? Or at
least how are they supposed to work? Kamakshya Trivedi: Yeah,
so at a very simple level, a carry trade is a strategy or
an investment strategy where an investor borrows in a
currency where interest rates are low and invests in a currency
where interest rates -- or what is often called in the
jargon "carry" -- the carry or interest rates are higher. And
so essentially, that strategy allows them to earn the spread
between the low interest rate currency where they
borrowed and the high interest rate currency where they're investing.
And typically, the kicker in these types of trades comes
from the fact that, in addition to the interest rate spread, if
the currencies actually move -- so the currency with the
low interest rate depreciates against the currency with the
high interest rates -- the investor earns not just the carry,
or the interest rate spread, but also they benefit from the
3 relative currency move.
So in the context of what we are discussing today, a
common example of the carry trade was the yen was a very
low yielding currency with interest rates that had been
pinned at zero for many years. Whereas, in comparison to
that, the US dollar, or US interest rates, which went up
quite meaningfully after the pandemic surge in inflation,
and so you had nearly a five percentage point gap between
interest rates in Japan, or what you could borrow on the
yen, versus what you could earn by investing in assets in
bonds in the US. And if you took an even
more higher yielding version of that trade, if you invested in emerging
markets, another common version of this,
which was borrowing in Japan, or in yen, and then investing
in Mexico, that spread was nearly 9-10%. So that's the kind
of carry trade that we're talking about.
Allison Nathan: Okay, got it. So Praneet, from your seat,
you see actual flows into these trades, so how long have
they been a feature of the market? And who's really
trading these positions? And how has that evolved recently?
4 Praneet Shah: These trades
have really been a feature of the market for a long time now. You last saw a
proliferation in these trades back around the Lehman crisis
around '09 where you also saw the subsequent unwind in
the years after. I think the second wave of yen carry trades
really have been in existence since 2016. This is when the
Japanese employed negative interest rates, so it became an
even more attractive funder relative to the rest of the world.
So they've been around for a long time, but you've only
really seen a heightened use of this strategy in 2023
because it was one of the best sharp ratio trades that you
could employ across multiple strategies, FX carry. And you
went into the start of this year where the macro narrative
was this immaculate disinflation, so this is inflation cooling
off within a very benign growth backdrop. So a lot of our
hedge fund franchise, CTAsin particular, were funding in
yen. You also saw real money look to fund loans in the
likes of Mexico that yield you 10%, borrowing in Japan at
zero. So at the start of this year,
you really did see a real increase in positioning,
and you got to real extremes in July, just at the start of the
summer. When you look at our positioning metrics,
they all indicated record yen 5
shorts, so it gives you a real indication as to how large
these positions really had built. And this took pretty much
six months to build over the start of the year, and they
continued to be added to in what was supposed to be a
quiet summer and it was supposed to be a market in which
you'd hoped to earn carry and where vol would realize low
over the summer months. Allison Nathan: And then
there is this institutional side, which is more entrenched, correct?
Praneet Shah: Yeah, so if you have one side of a franchise
that is the more speculative flow, which is the hedge funds
and CTAs I mentioned, these are the pension funds, investment trusts,
that all manage money in Japan that can't find the rate of return at home,
so they end up buying treasuries, call it at 5%.
Now, the cost of currency hedging these is very prohibitive,
so what's essentially ended up happening is they've just
bought these foreign assets, currency unhedged. And as a
result, they basically end up in an open FX position, and
this in essence is a carry trade. So if you look at our data, we'd say
historically these hedge 6
ratios, about 60% of investments have been currency
hedged. Right now, they're at multiyear lows, around 45%.
And it goes to show the levels of conviction even from this
institutional money in Japan to continue to buy foreign
assets through the course of this year. And it really started
back in 2022 when Japan really got left behind in the
global hiking cycle. Allison Nathan: So
Kamakshya, we now understand what the carry trade is, we understand
how popular of a trade it had become, so what drove
the unwind of this trade in what seems to be a very short
period of time in recent weeks?
Kamakshya Trivedi: Yeah, so I think that if you go back to
what we were discussing, both sides of the equation have
started to shift, which is there were reasons for rates to
start going up in Japan and there have been concerns
around US economic activity, concerns around US recession risks that have caused US rates to start
gradually coming down as inflation has cooled. So if you
go back to what we were talking at the top, which is the
attractiveness of these kinds of carry trades, is really the
interest rate differential or the spread that you can earn
and then the currency kicker. 7
What's really happened over the past few weeks is that
spread has started to narrow. It's started to narrow, on the
one hand, because the Bank of Japan has finally, after
many years of being pinned at zero or below, started to
move rates higher and there was somewhat of a surprising
interest rate hike that we saw from the Bank of Japan in
July that was not completely well anticipated by the market
but currently forecasted by our economists. And on the
other hand, you've got a series of somewhat weak US data
points, most particular amongst that an employment report
that came after some weak inflation readings, and so the
market started to worry about it and price in the possibility
of weaker US economic activity and, more particularly,
rapid cuts by the Federal Reserve. And so we saw from both sides
of this that interest rate differentials start to shrink
and the yen start to appreciate relative to the dollar. And then
part of these moves are very volatile because,
as Praneet said, people were very engaged in those trades or these
trades were very crowded in opposite directions.
That's the, I would say, the economic cause for why we saw some of these moves
starting to unwind. 8
I think it's also fair to say that we saw some other
coincidental news, whether it was on micro earnings, etc.,
that sort of caused volatility at the same time as well.
Allison Nathan: And Praneet, when you think about how
crowded these trades were and you think about how big
the moves were, how did that play into how all of this
unraveled? Praneet Shah: Yeah,
I think obviously, like you said
before, that we saw record yen shorts just prior to the start
of this move. If you actually drill down into our positioning
data, we actually saw the largest change in monthly
positioning since we started taking records. So it gives you
an idea of the wholesale liquidations of positions that
you've seen, especially on the speculative side of our flows
over the past few weeks. We basically saw record shorts in
yen, and now they're pretty much pared all the way back
down to flat. Allison Nathan: So Praneet,
Kamakshya just talked about the catalyst behind some
of the unwind here, but, when you think about the positioning
that you look at every day and the types of funds
that are owning these, how did that contribute to just the speed of the
unraveling that we saw? 9
Praneet Shah: Yeah, I think, look, when you saw a drawdown first start with an initial appreciation
in yen, it caused quite
a VAR shock across multiple portfolios. So VAR, meaning value at risk, is pretty much a risk
management model that a lot of funds employ to manage
max drawdowns. So when you're seeing a drawdown in one aspect of your portfolio,
it has a ripple effect across the rest of your line items. So purely
due to risk management purposes, if you're seeing
a drawdown in what was a pretty much concentrated trade held across
multiple funds, you see this ripple
effect that I've just spoken about whereby you're forced to pare down risk across all
your other line items.
So it almost has a self-reinforcing effect. When you've got
yen as the funder for other procyclical long risk trades and
you're seeing this unwound, you have this negative feedback loop. So not only did we start
to see other assets start to move such as
equity positions, even dispersion trades that aren't even really
related to the yen carry trade, per se, it had a pretty wide spread
impact across other markets, and I'd say
largely due to this position purge that you saw and a VAR shock essentially that ended up
resulting in positions needing to be pared down across the
10 board.
Allison Nathan: So essentially, even if you have conviction
in a trade that's unrelated, you may actually have to
unwind that position because of the VAR implications of
the big moves in the yen carry trade, for example? Praneet Shah: Yes, that's totally right.
Allison Nathan: And this is not just huge global macro
funds that have these positions. There were smaller funds,
too, right? So wouldn't they feel the pressure maybe more
quickly when we think about these types of moves and how
big they've been? Praneet Shah: Yeah,
when you look at that aspect of the flow that we saw, when you have
especially these multi- manager funds where you
have lots of smaller allocations of risk all managing the same trade,
you end up having to pay your risk down a
lot quicker than some of the more single-manager funds that were much
higher tolerance for a drawdown. So it's
almost a cascading effect whereby you've got lots of smaller pools of
capital now all drawing down at the same time.
You end up hitting risk limits a lot quicker than you historically otherwise
would have outside 11
of this type of a market structure. Allison Nathan: So Praneet,
the million dollar question is: How far are we into this unwind?
Praneet Shah: I think it's important to I think break down
the flows into two separate sets. So if you start with our
more speculative flow -- and that's flow that tends to be
much higher frequency, faster moving -- that slower hedge
fund, CTA, that element of it that's caused a marginal move
over the last few weeks. So our positioning data tends to
capture this aspect of the flow a lot better, and you can see
these record yen shorts have pretty much been pared all
the way back down to flat. So in terms of positioning
from this element of our franchise, it really
does look as though the worst may be over. However, again, like you said,
the multi trillion yen question actually could be:
What's actually happening with institutional money in
Japan? This is the flow that's really been entrenched over
the last few years since 2016. It's proliferated since 2022.
Here, you've got two sets of flow. One is Japanese retail.
This again tends to be slightly faster moving.
It's very likely that they will have hit margin calls on the way down in dollar yen and
cross yen. 12
So I'd estimate that this is pretty much mostly cleaned up.
However, institutional investors in Japan, I think this is
the one that's much more difficult to gauge. Here, we've
seen various estimates of how much holdings they've got.
So they've actually got, call it, two trillion US dollars of
foreign bond holdings in total, this community. We estimate that, especially the
pension fund industry that only really currency hedged 45%
at the moment, if you look at the equity side now,
we estimate that they have about another trillion US dollars of
equity holdings that could be susceptible to an FX move
as well. So these are pretty sizable numbers, but we don't
really have that firm a handle on how much of
this part of the portfolio that potentially needs to be unwound.
Again, this flow is a lot stickier. It's a lot slower moving.
Years of entrenched positioning don't just get washed away
in a few weeks. So yeah, look, I don't think this part of the
unwind is still over. I think there's a lot of flows that could
yet to become, and it mostly will be propagated by further
strengthening in yen. But again, this negative feedback
loop really is still there at the forefront of what the market's
thinking about. 13
Allison Nathan: Are there other reasons why the positioning might remain sticky in
these institutions even if the trade moves against itself?
Praneet Shah: Yeah, I think you can approach this in two
ways. So one, right now, like I said, hedge ratios look like
they're at 45%. They've typically been closer to 60%. But
on the margin, if anything, if you see these moves in yen,
you're likely to do one of two things. You either increase
the hedge ratio, or you start to pare down holdings of
foreign assets. In both those instances, it involves every
patriation back into yen. However, if you put aside
this need to rebalance your hedge ratio and you just look at the
bigger picture here, I can easily see a scenario
in which let's say the US manages to avoid a recession. Then you're back in this benign
disinflation narrative again. The yen suddenly starts to
stabilize. And let's face it,
I know the BoJ hiked rates 15 basis points, but the rounding error
is still close to zero. The US still has 5% rates. The Mexican
peso still has 10% rates. You still have an attractive
yield differential here. And if the US were to avoid a recession,
there wouldn't be any real 14
underlying reason to start a massive reallocation away
from foreign assets. So, yeah, I think that's pretty much
the thing we'd be looking at. The US recession fears I think
would be the driver. Allison Nathan:
Kamakshya, if we think about the broader context, there's the narrative that the
extreme volatility in equity markets ties
back to the unwind of these carry trades. True? Or is that overblown?
Kamakshya Trivedi: So the yen carry trade even in the
past week I think has been blamed for a lot of this market
volatility that we've seen. That's been the case of some of
the big drawdowns we've seen across equity markets to
spark volatility. I think some of that is reasonable. I think
carry strategies in some way, shape, or form have been
pretty ubiquitous across global asset managers of macro
funds. So whether that is funded out of the yen, funded
out of the Chinese renminbi, I think people have had some
of these types of FX carry strategies in portfolios. As those
have come under pressure, that's naturally going to have a
knock-on effect on other parts of their portfolio. So I think
that part of it is reasonable. What I think is a little bit of an
overstretch or an overclaim 15
is that all of the volatility, especially the volatility that we
saw on Monday, has to do with the yen carry trade. Japanese stocks were probably the biggest movers
on that day. They
dropped by more than 10%. The yen carry trade was not one where people were borrowing in yen and
buying Japanese stock. They were buying overseas assets.
So some of this is just that you also have had, at the same
time, some disappointing earnings, some questioning of the
broader artificial intelligence theme, and just generally
some frothy, over-positioned equity markets going into the
summer where you had some bad data and concern around US recession picking up.
So my view is that, yes, there's been some spillovers
elsewhere, whether it is in the weakening in Latin
American currencies, which were on the other side of those
carry trades; whether it's the kind of strengthening in CNY,
which was used as a funder in sympathy with the yen; but
I think some of the broader market volatility, specifically in
equity markets, I think is also just a function of the
coincidental timing of how some of the news flow has
evolved on the macro and the micro side. Allison Nathan: So just some bad
luck here with all this coming together at one time?
16 Kamakshya Trivedi: Yes, a little
bit of bad luck, but it's often the case that,
when you have markets at a high level, when you have particular trades that
are very highly crowded and
concentrated, it doesn't take very much to move things the other way. There were some genuine
fundamental reasons for some degree of unwind in the yen
carry trades specifically that we talked about, some
genuine fundamental shifts in the macroeconomic picture
in Japan and the US. But I think some of the broader
volatility does feel to me like some few different things came
together in a sort of perfect storm. Allison Nathan: And Praneet,
what should we take away from that if we think about
the broader market structure in terms of has it gotten too
brittle? Has it gotten too interdependent in a way that
we can see these very vicious bouts of volatility?
Praneet Shah: I think what's interesting about this risk
episode in particular is the way it's all unraveled. So if you
take the last risk shock, which was 2020, COVID was a
pretty exogenous event. You saw this big shock, people re-
rated down their growth expectations, the yen started to
appreciate. This was all correlated together. Stocks traded
17 lower,
yen took a safe haven bid. But I think in this episode, it's very interesting
to note the degree of endogeneity you've seen here. You saw this initial
appreciation in the yen after the authorities intervened.
And I think it's this negative feedback loop that I think has
caused the brittleness in this case. So you've seen a whole host
of investments funded out of yen. The price of these investments
are going to start to trade lower,
which in turn causes a further need to unwind. So here you've actually got this negative
circularity, which actually may not have been apparent in
the previous risk shock such as COVID. So I think this
one's a bit more unique in that people had actually funded
in a specific currency like the yen. But positioning really
did get to euphoric levels at the start of July, which
obviously hasn't helped. Kamakshya makes a good
point in that a lot of it may well be correlation and not causation,
and there's a lot of factors that all lined
up at the same time. But I think it's this endogeneity aspect of this risk
shock that has had a much bigger ripple
effect relative to what you've had in previous instances such as COVID that
have been a bit more exogenous.
18 Allison Nathan: But is that
endogeneity just a feature of the market at this point?
Praneet Shah: I think it's a feature of the market that
funds itself in a common currency and holds pretty much
concentrated risk across a similar set of trades. And I
think it's this feature of the market that really induces
brittleness in the market. Where you do have a sharing of
positions all concentrated, especially in a setup such as the
multi-manager one which you just discussed, where you've
got a big pool of capital that used to be managed in a more
concentrated way suddenly managed across lots of smaller
pools of capital, each with tighter risk limits, you end up
with this cascading effect again whereby a VAR shock in
one element of the portfolio ends up actually having a
much more amplified effect elsewhere purely because these
positions are all correlated to a much bigger degree than we
all expected them to be. Allison Nathan: Kamakshya,
any lessons you take away from this recent episode?
Kamakshya Trivedi: Yeah, I think I would echo some of
the things that Praneet said. I think it's the fact that you
19 had quite a crowded
position, one that has built up over many years, and perhaps some degree
of complacency that the macro outlook that
underlined that position that the US would continue to be exceptional
and strong and that Japan would struggle
to raise rates and generate inflation, there was a lot of complacency around both those
assumptions. Both of those have come into question in
recent weeks, and that's caused very big reversal on the
back of some of those changed market micro structure
dynamics that Praneet just described. Allison Nathan: But what I'm hearing
from you is this may not be the end of
the carry trade. It really just depends on how the macro conditions evolve from here and in
particularly between the US and some of these other
countries with low-yielding currencies. Kamakshya Trivedi: Absolutely not.
I think that the carry trade, as I go back to,
is very simply it's just borrowing in a low-yielding currency and investing
in a high-yielding currency. That is going
to stay with us. It's been with us well before yen became the kind of
dominant low-yielding currency. It's going to
stay with us well after. We've already I would say within
the past week seen some people reengage in it, move their funding
currency or borrowing 20
currency to the Chinese renminbi where perhaps the fundamental case for rates to remain low at
this point is stronger than it is in
Japan. So there will always be a lower yielding currency
to borrow from and a higher yielding currency to invest in. That
carry trade is going to be very much with us.
This particular one has got long in the tooth, got perhaps a
bit too crowded and saw some justifiable reason to have
some unwind. But it's definitely not the end of carry
trades. Allison Nathan: As
we've discussed and Kamakshya just said, carry trade not over,
but when could we see the interest in it rise again?
Praneet Shah: I mentioned at the start that 2023 FX carry
was one of the best performing short ratio strategies out
there. And I think an important part of the equation is the
realized VOL of the return. So Kamakshya mentioned that
you still have this potential return, invest in the US at 5%,
borrowing Japan at 0%. But a key input is how volatile is
that return likely to be? So right now, we've seen a huge spike
in implied volatility 21
in dollar yen because of how nervous the market is, how
volatile it's been, and it's very difficult to reengage in carry
strategies when realize and implied VOL is so elevated. So
again, given that yen has been the epicenter of all the
moves you've seen recently, it's very difficult to see people
really reengaging in procyclical long-risk trades just yet
whilst dollar yen vol remains elevated. So you can look at the term structure
to see what's priced. I see dollar yen returning
to a bit more of a normal market regime not only until mid-November
time. This is post the US election, so that's
still some weeks or even months away before you really see a
normalization. So we could be waiting a long time I think
if this elevated period of uncertainty continues to remain
before people really look to reengage.
Allison Nathan: And longer if the US economy disappoints
and we end up in recession and the macro conditions shift.
Praneet Shah: Oh, it's very conditional on the US growth
outlook. We've got payrolls coming up in September, just
before an all-important FOMC meeting. There's a whole
host of macro variables that you really need to be keeping
an eye on. So yeah, there's two parts here. There's, one,
22 the outlook
for the US and global economy. But two, how much of a risk premia we continue to place
in yen realized and implied vol.
Allison Nathan: Kamakshya, Praneet, thanks again for
joining us. Praneet Shah: Thank you, Allison.
Kamakshya Trivedi: Thanks, Allison. Allison Nathan: This episode of
Goldman Sachs Exchanges was recorded on Monday,
August 12th, 2024. I'm your host Allison Nathan. And if
you want to hear more from Goldman Sachs, listen to
The Markets. Every Friday, we break down what's going on in
the markets and what could come next. Check it out
on your podcast platform of choice. Thank you for listening.
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