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JPMorgan Takes Carry Trade To Asia

26 Jan 2007

JPMorgan is pitching an investment structure that will give Asian investors exposure to foreign interest rates.

JPMorgan is pitching an investment structure that will give Asian investors exposure to foreign interest rates. The CarryMAX structure is an update of the carry trade strategy traditionally used only by hedge funds. Charles Wong, head of rates structuring Asia-pacific ex-Japan, said it "caters to fixed-income as well as retail-type investors," citing demand in Asia from both these groups.

One thing in particular these groups want is foreign exposure, noted Wong. Some, who have quotas to fill on foreign investments, will want U.S. dollar denominations, but locally-denominated versions will be on offer. He said the trade is similar to a version rolled out late last year in Europe, but JPMorgan has added a few other features, including payouts in local currencies.

CarryMAX uses an algorithm to select between nine different interest-rate swap markets including the U.S., the U.K., Japan, the euro area, Denmark, Sweden, Canada, Australia and Switzerland. It then goes long on the two with the most positive carry and shorts the two with the lowest rates. Investments are currency hedged so the investor does not take on currency exchange risk.

26 Jan 2007