The carry trade: a tsunami in the making

The carry trade is currently all the rage with investors - so much so that the Economist recently valued it at as much as $1tr. Jeremy Batstone explains why this story is about much more than the Yen.

In last week's Week In Preview article we considered the possibility of a shock of seismic proportions to the financial markets caused by indigestion stemming from the swathe of debt-funded acquisitions all the rage at present. This week we consider the threat posed by the other, and as some would see it, related financial market enormity all the rage at the moment, the carry trade. For those who blithely benefit from developed equity markets' inexorable ascent to new multi-year highs, without bothering to consider how carefully the ropes have been pinned to the mountainside, this particular piece of financial market chicanery might be regarded as a distant event with little practical significance. Inevitably, perhaps, we think not! The highly regarded Economist magazine wrote on February 10th that the carry trade could amount to as much as $1tr, a far from insignificant figure even in the context of today's highly valued markets.

What Is The Carry Trade?

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