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Carry trade behavior by non-US banks

Author

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  • Homma, Yasutake
  • Suzuki, Katsushi

Abstract

Carry trade behavior by banks is considered to lead their solvency and liquidity risks. This study examines the carry trade behavior of non-US banks by testing the dynamics of short-term US dollar bond issuances. We find that non-US banks, particularly those in advanced economies, issue a larger amount of US dollar bonds under favorable carry trade conditions. They also allocate the proceeds to short-term investment assets, suggesting their engagement in carry trade behavior. However, we do not consistently observe the same relationship between US dollar bond issuances and favorable carry trade conditions in emerging economies. This finding aligns with previous studies indicating that banks in emerging economies do not engage in carry trade behavior.

Suggested Citation

  • Homma, Yasutake & Suzuki, Katsushi, 2025. "Carry trade behavior by non-US banks," Research in International Business and Finance, Elsevier, vol. 73(PA).
    • Handle: RePEc:eee:riibaf:v:73:y:2025:i:pa:s0275531924004112
    DOI: 10.1016/j.ribaf.2024.102618
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