March 08, 2004

The increasing frequency of financial newspapers talking about the carry trade shows it is in vogue within the hedge fund community. Every time we talk about the carry trade there is always a thought that comes to mind: Since the slope of the yield curve is usually positive, it follows that the necessary condition for the carry trade is almost ever present. Then why is it that the carry trade is currently popular opposed to every instance the yield curve has a positive slope? In order to get a handle on the issue we decided to think in terms of how we would describe the carry trade to a novice investor.

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