The Carry Trade Meltdown

Japanese bond yields are soaring:

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Bond yields in Japan have soared in recent sessions, with the 10-year and 30-year hitting record high yields. (Source: CNBC)

The yen “carry trade” works for institutional investors who borrow low-interest-rate Japanese yen and convert the loan into a high-interest-rate currency to invest in assets like bonds or stocks.

The investor profits from the interest rate differential, or “carry,” as long as the yen remains weak or depreciates against the investment currency. If the yen strengthens sharply, however, the investor can lose money when converting the foreign currency back to yen to repay the loan.

With Japanese yields soaring, the returns on the carry trade are lower. Carry trades are likely getting unwound, pushing Japanese bond yields even higher.

The unwinding of the carry trade also helps explain why many individual stocks listed on the New York Stock Exchange have crashed by 40-50% from their recent highs. Investors are selling the target assets of the trade in order to pay back their yen-based loans before their profits get squeezed.

Along with the strain we’ve been observing in the private credit markets, the unwinding of the yen carry trade is another sign of structural problems with the “plumbing” of the global financial system – and desperately in need of an upgrade.

~ Addison

P.S. This afternoon, on Grey Swan Live! with Mark Jeftovic and Ian King, we’ll review how events like the unwinding of the Japanese yen carry trade could be part of the reason for the recent pullback in bitcoin and stablecoin stocks.

And how the correction fits into our “Dollar 2.0” digital asset thesis.

Since the October 21st Payments Innovation Conference hosted by the Fed, the regulatory environment has continued apace, despite the government shutdown, the SEC, IRS and CFTC have all updated guidance.

Even bitcoin and crypto bulls will tell you that a sound regulatory environment is good for the digital asset space. The Treasury under the Trump administration is counting on stablecoins to mature sufficiently so that the U.S. dollar retains its reserve currency status in the burgeoning digital economy.

If you’re new to the Grey Swan Investment Fraternity, you’re going to want to join us today (November 20, 2025 at 2pm EST/11am PST) as we get into the weeds a little and identify investment opportunities of the digital asset revolution.

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And don’t miss your tax planning event tomorrow (Friday, November 21, 2025 at 2pm EST/11am PST)

We’ve invited our friends at Prime Financial Services back to help you with tax planning for your investment portfolio ahead of the holiday season and closing out the trading year 2025.

Prime’s Nick Buhelos will join us again to make sure you maximize your investment returns – by walking you through the correct financial structure you need totake advantage of explicit IRS business rules that apply to individual investors, including the new tax structure from the Big Beautiful Bill that starts January 1, 2026.

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If you have requests for new guests you’d like to see join us for Grey Swan Live!, or have any questions for our guests, send them here.

How did we get here? Find out in these riveting reads: Demise of the Dollar, Financial Reckoning Day, and Empire of Debt — all three books are now available in their third post-pandemic editions. You might enjoy one or all three.

Japanese bond yields are soaring:

Turn Your Images On

Bond yields in Japan have soared in recent sessions, with the 10-year and 30-year hitting record high yields. (Source: CNBC)

The yen “carry trade” works for institutional investors who borrow low-interest-rate Japanese yen and convert the loan into a high-interest-rate currency to invest in assets like bonds or stocks.

With Japanese yields soaring, the returns on the carry trade are lower. Carry trades are likely getting unwound, pushing Japanese bond yields even higher.

~ Addison

And how the correction fits into our “Dollar 2.0” digital asset thesis.

Turn Your Images On

And don’t miss your tax planning event tomorrow (Friday, November 21, 2025 at 2pm EST/11am PST)

We’ve invited our friends at Prime Financial Services back to help you with tax planning for your investment portfolio ahead of the holiday season and closing out the trading year 2025.

Turn Your Images On

If you have requests for new guests you’d like to see join us for Grey Swan Live!, or have any questions for our guests, send them here.

Trump and Powell are no buddies. They’ve been fighting over rate cuts all year—Trump demanding more, Powell holding back. Even after cutting twice, Trump called him “grossly incompetent” and said he’d “love to fire” him. The tension has been building for months.

And Trump now seems ready to install someone who shares his appetite for lower rates and easier money.

Trump has been dropping hints for weeks—saying on November 18, “I think I already know my choice,” and then doubling down last Sunday aboard Air Force One with, “I know who I am going to pick… we’ll be announcing it.”

He was referring to one Kevin Hassett, who—according to a recent Bloomberg report—has emerged as the overwhelming favorite to become the next Fed chair.

Here we sit — investors, analysts, retirees, accountants, even a few masochistic economists — gathered beneath the leafless monetary tree, rehearsing our lines as we wait for Jerome Powell to step onstage and tell us what the future means.

Spoiler: he can’t. But that does not stop us from waiting.

Tomorrow, he is expected to deliver the December rate cut. Polymarket odds sit at 96% for a dainty 25-point cut.

Trump, Navarro and Lutnick pine for 50 points.

And somewhere in the wings smiles Kevin Hassett — at 74% odds this morning, the presumed Powell successor — watching the last few snowflakes fall before his cue arrives.

With U.S. stocks trading at about 24 times forward earnings, plans for capital growth have to go off without a hitch. Given the billions of dollars in commitments by AI companies, financing to the hilt on debt, the most realistic outcome is a hitch.

On a valuation basis, global markets will likely show better returns than U.S. stocks in 2026.

America leads the world in innovation. A U.S. tech stock will naturally fetch a higher price than, say, a German brewery. But value matters, too.

As copper flowed into the United States, LME inventories thinned and backwardation steepened. Higher U.S. pricing, tariff protection, and lower political risk made American warehouses the most attractive destination for metal. Each new shipment strengthened the spread.

The arbitrage, once triggered, became self-reinforcing. Traders were not participating in theory; they were responding to the physical incentives in front of them.

The United States had quietly become the marginal buyer of the world’s most important industrial metal. China, long the gravitational center of global copper demand, found itself on the outside.

And Trump now seems ready to install someone who shares his appetite for lower rates and easier money.

He was referring to one Kevin Hassett, who—according to a recent Bloomberg report—has emerged as the overwhelming favorite to become the next Fed chair.

Spoiler: he can’t. But that does not stop us from waiting.

Tomorrow, he is expected to deliver the December rate cut. Polymarket odds sit at 96% for a dainty 25-point cut.

Trump, Navarro and Lutnick pine for 50 points.

And somewhere in the wings smiles Kevin Hassett — at 74% odds this morning, the presumed Powell successor — watching the last few snowflakes fall before his cue arrives.

On a valuation basis, global markets will likely show better returns than U.S. stocks in 2026.

America leads the world in innovation. A U.S. tech stock will naturally fetch a higher price than, say, a German brewery. But value matters, too.

The arbitrage, once triggered, became self-reinforcing. Traders were not participating in theory; they were responding to the physical incentives in front of them.

The United States had quietly become the marginal buyer of the world’s most important industrial metal. China, long the gravitational center of global copper demand, found itself on the outside.