The Economic Intelligence Agency reported on the 29th that Yardeni Research said investors using the yen as a funding currency for carry trades may be exacerbating the global bond market sell-off.
The firm's president and chief investment strategist, Ed Yardeni, said in a report that a more likely explanation for the sharp decline in global bond markets is that yen carry trades are being unwound as the Bank of Japan raises its policy interest rate, forcing carry traders to sell government bonds they had previously bought around the world using low-cost yen borrowings.
He said: "These trades have allowed many governments to maintain budget deficits without causing upward pressure on government bond yields. Now, the hidden risks built up in the past are beginning to surface."
Yardeni pointed out that while the Bank of Japan and other major central banks kept borrowing costs abnormally low, governments maintained large fiscal deficits while accumulating substantial debt. Now, the market may be witnessing a backlash. (rc)
The firm's president and chief investment strategist, Ed Yardeni, said in a report that a more likely explanation for the sharp decline in global bond markets is that yen carry trades are being unwound as the Bank of Japan raises its policy interest rate, forcing carry traders to sell government bonds they had previously bought around the world using low-cost yen borrowings.
He said: "These trades have allowed many governments to maintain budget deficits without causing upward pressure on government bond yields. Now, the hidden risks built up in the past are beginning to surface."
Yardeni pointed out that while the Bank of Japan and other major central banks kept borrowing costs abnormally low, governments maintained large fiscal deficits while accumulating substantial debt. Now, the market may be witnessing a backlash. (rc)
