Carry watch: where is the yield picking up?
The carry trade earns the rate difference while the exchange rate cooperates. This thread tracks where the yields are, where the risks are, and how the trade is behaving.
Post:
- the pairs with attractive carry right now
- the unwind risks you're watching
- how swap income compares with the volatility risk
Background: carry trade explained.
Background: Why carry trades unwind so violently
Carry trades earn steady yield for months and then collapse in days — and the collapse is structural, not accidental. Here is the mechanics of the unwind and why it hits every market at once.
What is a carry trade unwind?
The forced reversal of carry positions: traders sell the investment currency and buy back the funding currency, usually under margin pressure. The buying pushes the funding currency up and feeds further exits.
Why do carry trades collapse so fast?
Because the trade is crowded, and the exits feed themselves: each round of forced buying strengthens the funding currency, deepening losses and triggering the next round. The loop is self-reinforcing.
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