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Thread: The Carry Trade: Buy or Sell?

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#167 (permalink)

07-31-2008, 05:06 PM

David Rodriguez David Rodriguez is offline

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Quote:

Originally Posted by John Kicklighter

I was looking through interest rate expectations for the coming year over various economies and it seems like there is a notable shift in the forecast for yield differentials.

Here is how they stack (expected basis points of tightening or easing over the next 12 months):

Fed: 80bp (Current lvl: 200)
ECB: -4.6bp (425)
BoE: -33.3bp (500)
BoJ: 16bp (50)
SNB: 25bp (275)
BoC: 7bp (300)
RBA: -52bp (725)
RNBZ: -149bp (800)

This could be a big driver for general market direction over the coming months, especially since it overlaps ongoing credit market concerns and a general slowdown in global growth.

It's pretty clear that markets expect rate cuts from current high-yielders and mild prospects of rate hikes from low-yielders. This could be bad for the carry trade generally.

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