Is this the end for Yen carry trades?

The bullish trend for global equity markets faced its first test of the year in April; all benchmarks gave back some of the strong YTD gains due to the rising tensions between Iran and Israel, threatening the ignition of another proxy war in the Middle East. At the same time, interest rate cut hopes have all but faded for 2024, hurting the US treasury market. Consequently, the infamous Yen carry trade now looks vulnerable to vicious pullbacks. It’s, therefore, no surprise that portfolio hedging demands increased, with several Eurex products benefitting from this need for liquid hedging instruments.?EURO?STOXX 50?, STOXX??Europe 600, VSTOXX?, and DAX??Futures all registered double-digit percentage uplift in volumes compared to the same month last year.?The TRF and dividend derivatives segments also saw higher-than-usual trading activity. The options picture was similar, with notable volume jumps recorded for the Banks sector, KOSPI 200 and the new Daily options segment.?And, with gold hitting fresh highs, the iShares Physical Gold ETC?Options saw heavy trading on Eurex.

Members have already chalked up the first new executions in the EURO?STOXX 50??Dividend?Mid?Curve?Options. The order?book price picture for our FTSE Bitcoin?Index?Futures tightened considerably due to the introduction of a new liquidity provider scheme; it’s been one year since launch, and over 92,000 lots traded, equivalent to more than USD 3bn notional.?A new functional offering, Delta TAM for index TRF blocks, was released and immediately utilized by participants, enabling isolation of the equity repo and carry spread. We achieved a new milestone with more than 100 individual?Equity TRF products traded since the launch in 2019.

The market feels finely poised between the continuance of the trend and a bounce back to the highs, or this retracement has further room to the downside.?Appreciating such a comment does nothing for the directional players; it may reflect that the spike in options hedging activity is not yet over, especially given that VSTOXX??levels have already faded back to normal levels again.?The product launch window is still very much open, and members will shortly receive announcements detailing fresh product introductions in June and July.