Carry Trade’s Resurgence: A Risky Strategy Reemerges in 2024 Markets

A hedge-fund trade blamed for a massive market blowup in 2024 has made a big comeback, Goldman Sachs says

Carry Trade’s Resurgence: A Risky Strategy Reemerges in 2024 Markets

The currency-market carry trade is back — and bigger than it’s been in many years. This strategy, which involves borrowing in low-interest-rate currencies to invest in higher-yielding assets, has resurged after a turbulent period that saw significant market volatility in early 2024. Goldman Sachs analysts note that the renewed interest in carry trades reflects a shift in investor sentiment toward risk-taking, driven by central bank policies and global liquidity conditions.

Central Banks’ Role and Liquidity Impact

■Uncertainty in Federal Reserve’s interest rate policies has pushed investors toward higher-yielding currencies outside the yen.

■Investors moving away from the Bank of Japan’s tight policies are gravitating toward other currencies with higher yields.

■Slower GDP growth is reviving lending strategies, boosting the carry trade.

Risks and Strategic Shifts Among Investors

■The rise of carry trades is driving increased use of low-interest currencies like the Japanese yen and Turkish lira.

■According to Goldman Sachs, this trend could heighten sensitivity to sudden currency fluctuations.

■Investors are monitoring this trend on markets such as the Nikkei Exchange and Hong Kong Stock Exchange.

While the resurgence of carry trade signals renewed appetite for risk, concerns are mounting over whether sufficient liquidity exists to weather external shocks. Particularly, China’s slowing industrial PMI is casting doubt on the sustainability of this strategy.