Bank of Japan Yield Curve Control
Updated
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The carry trade - an investment strategy that takes advantage of differences in borrowing costs between countries - has provided bumper returns this year as most central banks have hiked rates, causing yields to rise, but at different paces.
"The world's favourite carry trade," according to Bank of America, involves investors borrowing Japanese yen where the central bank has pinned rates low, and converting them to Mexican peso to buy much higher-yielding bonds.
One-year bond yields are about 0.1% in negative territory in Japan , but their Mexican counterparts yield around 11%.
A hypothetical $50,000 invested in a short yen, long peso carry trade for the first six months of the year would have yielded a profit of $15,100, according to Refinitiv Eikon.
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As the Japanese Bonds start to escape BoJ's Yield Curve Control - this extremely leveraged carry trade is going to explode in everyone's face.
The carry trade - an investment strategy that takes advantage of differences in borrowing costs between countries - has provided bumper returns this year as most central banks have hiked rates, causing yields to rise, but at different paces.
"The world's favourite carry trade," according to Bank of America, involves investors borrowing Japanese yen where the central bank has pinned rates low, and converting them to Mexican peso to buy much higher-yielding bonds.
One-year bond yields are about 0.1% in negative territory in Japan , but their Mexican counterparts yield around 11%.
A hypothetical $50,000 invested in a short yen, long peso carry trade for the first six months of the year would have yielded a profit of $15,100, according to Refinitiv Eikon.
---
As the Japanese Bonds start to escape BoJ's Yield Curve Control - this extremely leveraged carry trade is going to explode in everyone's face.
Note
BoJ mulls ending Yield Control to focus on JGB buyingbloomberg.com/news/articles/2024-03-09/boj-mulls-scrapping-yield-curve-control-program-jiji-says
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