Carry Trade

First published: 2018

Brief summary

BIS working paper on carry trade and currency risk premia.

Article

The linked BIS paper is titled “Searching for yield abroad: risk-taking through foreign investment in US bonds.” It is not a study of currency carry trades, despite the topic title used in this spreadsheet.

The study analyses security-level holdings by investors from 36 countries in nearly 15,000 US corporate bonds between 2003 and 2016. It compares changes in investors’ home-country interest rates with the risk profile of the bonds they purchase.

The authors find that declining home interest rates are associated with shifts towards riskier US corporate bonds. The estimated effect becomes stronger when interest rates fall to especially low levels.

The paper concerns international portfolio risk-taking and search-for-yield behaviour. It does not directly test borrowing in a low-yield currency to invest in a high-yield currency, which is the usual definition of a foreign-exchange carry trade.

Source details and credits

• Source / publisher: BIS
• Source type: Working paper
• URL type: WWW
• Credits: BIS
• URL: https://www.bis.org/publ/work687.htm