Three-quarters of carry trade erased

Agencies

Three-quarters of the global carry trade has now been removed, with a recent sell-off erasing this year's gains, according to JP Morgan Chase.

Returns in Group-of-10, emerging market and global carry trade baskets tracked by the bank have fallen about 10 percent since May, quantitative strategists Antonin Delair, Meera Chandan and Kunj Padh wrote in a note to clients. The moves have wiped out the year-to-date returns and significantly cut into profits accumulated since the end of 2022.

"The spot component of the global carry basket would suggest that 75 percent of carry trades have been removed," the JP Morgan team wrote, reiterating that the "clock is ticking for the G10 carry."

The strategy, which involves borrowing at low rates to fund purchases in higher-yielding assets elsewhere, has been wobbling for months, especially carry trade in yen.

The report came as the yen hit choppy trading yesterday after a sharp drop the day before in a volatile week in which investors have had to digest the unwinding of the carry trades and how Japanese monetary policy might evolve.

The yen swung between losses of 0.14 percent and a gain of 0.85 percent

A summary of opinions voiced at the Bank of Japan's July policy meeting showed yesterday that some board members called for the need to keep raising interest rates with one saying they should eventually be increased to at least around 1 percent.