Previous instances show a process that took years to calm.
The recent unwinding of the yen "carry trade" could remain a long-term headwind amid already turbulent markets. The popular trading strategy among hedge funds — in which an investor borrows in a certain currency with low interest rates to buy higher-yielding assets elsewhere — began to fall apart last week when the Bank of Japan unexpectedly raised its benchmark interest rate and followed up with currency intervention.
Everyone's been sitting around the table feasting on juicy carry returns, and now everyone is trying to get out at the same time. ... It can get messy really quickly," he added. As of Wednesday, Osborne estimates short traders have only given up 5% of their gains on the trade over the past year. Osborne cited two key measures, the Bloomberg G10 Carry Index and the Bloomberg GSAM FX Carry Index, which show an average shakeout of around 10% in periods of correction.
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