Goldman Sachs: Currency Carry Trade Surges Back After 2024 Blowup
The currency carry trade has roared back to multi-year highs, Goldman Sachs reports, just months after the strategy triggered a major market disruption in 2024.
The currency carry trade — a hedge-fund strategy that was widely blamed for triggering a massive market blowup in 2024 — has staged a dramatic comeback and is now larger than it has been in many years, according to Goldman Sachs.
The carry trade works by borrowing money in a low-interest-rate currency and deploying those funds into higher-yielding assets or currencies, with investors pocketing the difference. The strategy can generate steady returns in calm markets but can unwind violently when volatility spikes, forcing leveraged players to exit positions rapidly and amplifying broader market sell-offs.
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That's precisely what happened in 2024, when an abrupt unwinding of carry trades — many of them centered on the Japanese yen — sent shockwaves through global financial markets. The episode served as a sharp reminder of how quickly crowded positioning in currency markets can cascade into widespread asset-price dislocations.
Despite that cautionary episode, traders appear to have returned to the strategy with renewed appetite. Goldman Sachs's findings suggest that the carry trade has not only recovered but has grown beyond recent historical norms, raising fresh questions among analysts and risk managers about the potential for another destabilizing unwind if market conditions shift unexpectedly.
The resurgence highlights a persistent dynamic in global finance: even after painful blowups, the lure of consistent yield in a low-volatility environment tends to draw capital back into the same crowded trades. Whether regulators or market participants will act to manage the renewed buildup of risk remains an open question. Continue reading at MarketWatch.com
