Markets Risk Similar Volatility to Carry Trade Unwind, BIS Warns
- Report follows rapid unwinding of yen funded carry trades
- Says lack of FX data clarity makes tracking strategy difficult
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The Bank for International Settlements is warning the financial system is prone to repeat episodes of volatility like the one that rippled across markets this summer when a popular hedge fund strategy collapsed.
As central banks across the world withdraw liquidity, investors will be forced to reduce leverage and review risk strategies, the BIS said in a report published on Monday. The unwinding of so-called carry trades is the most recent example of the potential consequences of that transition.