Martin retweetledi

Somehow all the financial “experts” do not understand why EVERYTHING is suddenly plunging today- supposedly on “no news”.
Do all these “experts” have no understanding of the Yen Carry Trade & the FX Swap market?!
Japanese Government Bond (JGB) yields have gone vertical exploding to record high after record high- this is forcing the complete unwinding of the carry trade.
Why does this matter??
The yen carry trade is only around $270 billion, right? Right?!
So what’s the big deal??
The big deal is the OTC swap market. Off balance sheet transactions via the OTC FX swap market.
If you include the yen FX swap market transactions between yen and other currencies, the Yen OTC swap market currently sits ~ $14 TRILLION according to the BIS.
$14 TRILLION in FX swaps involving the yen essentially hedging FX moves between the yen & the dollar, yen & the euro etc that that could potentially undergo a forced unwind.
We suspect the purpose of a significant portion of those $14 TRILLION YEN FX swaps is to engage in a yen carry trade using FX swaps to borrow yen & then acquire that yen
obligation by going through the FX swap.
If we are correct, the market is looking at a $14 TRILLION liquidity problem if the USD/ JPY continues to blow out, & the Japanese Gov’t Bond crisis escalates- causing the unwind of potentially $14 TRILLION in yen carry trade liquidity sloshing around US financial markets due to Yen FX swaps carry trade.
Buckle up boys & girls.
If we are correct, this ride is just getting started.

English





















