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Strategies & Market Trends : John Pitera's Market Laboratory

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To: John Pitera who wrote (7540)	2/9/2007 4:59:09 PM
From: John Pitera	Read Replies (4) of 33421

State Street sees danger of carry trade collapse Friday, February 09, 2007 10:14:27 AM (GMT-06:00) Provided by: Reuters News Corrects second paragraph to add word 'low' and in sixth paragraph substitutes word 'higher' for 'lower.' LONDON, Feb 9 (Reuters) - U.S. financial services firm State Street said on Friday that the investment flows it tracks are pointing towards a sharp strengthening of the Japanese yen against the dollar that could wipe out the carry trade. The firm, which monitors the moves of $11.9 trillion it holds in custody for insitutional investors, said that six month flows into yen and Swiss francs are at near record low levels for the past 10 years. They are the funding currencies of choice for the so-called carry trade in which investors borrow in one low-yielding currency to invest in a higher-yielding one. "The last time positioning in these two currencies were so extreme was June 1999," it said in a note. "Six months later the yen has appreciated 17 percent against the dollar." A move of that size now would "kill carry dead," it said. Specifically, it said flows into the franc and yen were in the fifth and sixth percentiles respectively, meaning that they had been higher on 95 percent and 94 percent of occasions during the previous 10 years. State Street said its macro strategy team had established a long position in yen.

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