The Bond Market is Pricing in a Collapse of The Yen Carry Trade

The spread between the US10Y and JP10Y has historically been a great leading indicator of contraction within the Yen Carry Trade and likely will be into the future.

If we were to apply TA to it, we can see that the spread appears to be Double Topping and has formed a Bearish Shark at this top as the RSI breaks down and the MACD Diverges. If we are to take this as a warning, then we should expect this spread to go down significantly, and that would be accompanied by the contraction of the Carry Trade, leading to lower liquidity and signfiicantly tighter credit conditions and ultimately a depreciation in market pricing.

I think we could see JPY and USD strength during this time but would avoid other currencies.


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