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Episode 02 explained why carry trades can unwind quickly after long calm periods. This episode goes one level deeper and asks what actually protects a carry trade day to day: the yield cushion, the volatility cushion, the liquidity cushion, and the funding cushion. By the end, listeners should understand why a wide yield spread can still be a weak trade if FX volatility or positioning turns against it.
By VoxEpisode 02 explained why carry trades can unwind quickly after long calm periods. This episode goes one level deeper and asks what actually protects a carry trade day to day: the yield cushion, the volatility cushion, the liquidity cushion, and the funding cushion. By the end, listeners should understand why a wide yield spread can still be a weak trade if FX volatility or positioning turns against it.