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The End Of The Carry Trade?

Submitted by Tyler Durden on 03/29/2010 21:41 -0400

Carry Trade

The End Of The Carry Trade, Submitted by JM

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Mon, 03/29/2010 - 21:47 | 280185 Nolsgrad

PST vs TBT

mid range of curve looks a little meaty

Mon, 03/29/2010 - 22:15 | 280207 carbonmutant

More importantly, "Are we heading toward an inversion?"

Mon, 03/29/2010 - 22:30 | 280219 43 Steelie

That would be quite the anomaly seeing how rates can't go any lower.

It would take one hell of a flight to 'quality' on behalf of the world.

Mon, 03/29/2010 - 22:32 | 280222 ex ante

not if we invert in a bear flattener - all that massive supply is parked in the front end

Tue, 03/30/2010 - 08:43 | 280355 tenaciousj

I love it when you talk dirty

Mon, 03/29/2010 - 22:16 | 280208 SWRichmond

This might matter if someone could explain to me which piece of economic data wasn't firmly in the hands of the people who print money and deposit it various places at will, in order to manage those economic indicators.

Tue, 03/30/2010 - 00:12 | 280256 malusDiaz

Baltic Dry

Mon, 03/29/2010 - 22:19 | 280212 RhoRhoRhoBoat

I've always been a basher of your posts, but this wasn't half bad, just sticking to showing data.

Mon, 03/29/2010 - 22:53 | 280229 jm

It's not the weekend. Joke.

Mon, 03/29/2010 - 22:23 | 280216 ex ante

http://theexantefactor.wordpress.com/2010/03/28/swap-spread-inversion-and-carry-trade-unwinds/

was thinking the same thing.... note the USDJPY breakout was happening before the 5YR auction. the 10YR swap spread inversion smells more like a forced cover than a bet against US treasuries as many suggest.

this is the gap conundrum rearing its head. banks have to be negatively gapped to take advantage of the carry but they know rates will rise from zero which should put them positively gapped. the net result is a negative gap balance sheet with a positive gap swap hedge. a large unwind of the carry trade and hence the swap may just be enough to invert the spread..

Mon, 03/29/2010 - 22:55 | 280230 jm

Agreed.

The steep yield curve has rewarded borrowing short and lending long… a generalized carry trade.
Treasury supply is unprecedented.
This supply has altered previously well-understood economic relationships like 10 year and 30 year swap spreads.
Two corroborating metrics show inflation expectations are low and diminishing.
With inflation expectations not a driving factor, the next action in treasuries will be in curve compression.
The yield curve flatten?

Mon, 03/29/2010 - 23:27 | 280242 tip e. canoe

the question i have is: who's on the other end of that swap in which you refer to?

Tue, 03/30/2010 - 08:44 | 280356 ex ante

BOJ?

Wed, 03/31/2010 - 00:49 | 281366 tip e. canoe

nomo arigato

Mon, 03/29/2010 - 23:15 | 280239 Wheatman

Inversion is impossible on systemic grounds. Forget inflation. Try forced and systemic "devaluation". If the curve does flatten it will be flattening on the moon.

Mon, 03/29/2010 - 23:32 | 280240 plocequ1

Bonds, The dollar, The yield curve, The Fed balance sheet, Economic indicators, Unemployment.. Who gives a fuck? Apple is coming out with a new IPhone, Rally on.. The world is good again. Dow 36000. Now leave me alone whilst i eat my Tapioca pudding and watch The Brady Bunch

Tue, 03/30/2010 - 00:53 | 280272 Johnny Dangereaux

Jan or Marsha? That is the real question!

Tue, 03/30/2010 - 01:19 | 280283 WaterWings

Carol

Tue, 03/30/2010 - 07:34 | 280339 bonddude

Alice- While her butcher boyfriend/beard sits in

the corner covered in veal blood.

OMG !

Tue, 03/30/2010 - 08:23 | 280346 jm

Robo?

Tue, 03/30/2010 - 09:11 | 280361 plocequ1

When I was at my discovery stage of 7 years old ( Many moons ago), I discovered Marsha and Jan always gave me a woody. Those Legs. Im talking of course when they were older. Carol wasnt too bad either. That pesky Alice Alice always ruined the moment. The early 70s... What a great time to be alive.

Tue, 03/30/2010 - 01:08 | 280279 Lux Fiat

Depending on whose version of history you want to believe, back in 1930 Snowden, the British Chancellor of the exchequer, and Cheron, the French MF, got into a pissing contest at a conference. France then withdrew some gold/reserves from England, England's rate goes up, and things go downhill from there, with an assist from a lot of other factors (Kindleberger).

Who, besides the Fed, is going to keep showing up at the Treasury auctions? Whether it is from rational reasoning, or the protectionist drumbeat emanating from Washington (partly in response to the one that has been emanating from China for so long), the Chinese, Japanese and others are not gracing the auctions with their old attentions. Can rates go up in an overall deflationary environment? They probably can if there is huge supply and little demand. At least until something major breaks from the strain.

Tue, 03/30/2010 - 02:47 | 280303 Grand Supercycle

Current EUROYEN / EURO strength and USD weakness continues.

http://www.zerohedge.com/forum/latest-market-outlook-0

Tue, 03/30/2010 - 09:01 | 280364 4shzl

Nice work, JM. Unit labor costs lead inflation expectations, and labor keeps getting cheaper.

Tue, 03/30/2010 - 09:57 | 280393 asteroids

Mortgage rates have started to rise in Canada due to the 10yr getting more expensive. The party if over folks. I give the US no more than 60 days before all hell breaks loose.

Mon, 04/12/2010 - 05:24 | 296159 mark456

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The End Of The Carry Trade?

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