Three-quarters of global carry trades have already been canceled, according to JPMorgan Chase & Co. strategists, and the recent selloff has wiped out all of this year's gains from the trades, Bloomberg reports.
Carry trading involves investing borrowed money from low interest markets into assets from higher interest markets. JP Morgan's quantitative strategists said in a report that returns on a basket of G-10, emerging markets and global markets have fallen about 10 percent since May, erasing year-to-date gains and significantly reducing gains since the end of 2022.
"The spot component of the global carry basket shows that 75 percent of carry trades have been cancelled," JP Morgan said in a statement.
Concerns about a widening gap between US and Japanese monetary policy have prompted investors to pull out of carry trades in recent weeks. The exit rate for these deals was twice as fast as normal.
JP Morgan strategists point out that while reduced volatility and a drop in central bank activity will open the possibility of a carry trade recovery in August, the global carry trade strategy "does not offer an attractive risk-reward ratio."
