The recent turbulence in the Yen carry trade has raised concerns among investors about potential aftershocks and broader contagion effects.
However, Macquarie analysts suggest that these tremors are likely to diminish in the coming days, despite the initial volatility seen across financial markets.
Macquarie highlights that while the disruption in the Yen carry trade has caused notable fluctuations in bonds, FX markets, and volatility indices, these disturbances appear to be more like "heart palpitations rather than cardiac arrests."
For instance, the firm explains that the MOVE index, which tracks bond market volatility, spiked above 110, and the VIX, a measure of equity market volatility, fluctuated between 25 and 50. Yet, these movements, though significant, are not indicative of a systemic crisis.
Furthermore, Macquarie says that in the high-yield (HY) bond market, spreads on the most vulnerable bonds (rated CCC or below) increased slightly from 9% to 10%, which is still below the historical average of 12%. Similarly, the best quality HY bonds (rated BB) saw spreads rise modestly from 1.9% to 2.4%, but these levels remain well below historical norms.
Macquarie asserts that, in a world where capital is abundant, central banks have considerable tools at their disposal to manage such disruptions through communication and tailored policies.
They do not see the recent events as signaling a fundamental shift in global liquidity or the structure of investments but rather as a "temporary aberration" in an overextended market.
For investors concerned about the long-term implications, Macquarie's message is clear: "There is no end game." They explain that the management of the vast and volatile financial economy is an ongoing process, and the current disturbances are expected to subside without leading to broader contagion.