CaptainJJack

Erosion in the M2:M1 Relationship and the Burgeoning Eurodollar Bubble

The carry trade is only a piece of the puzzle. The key, to me, is leverage.

If I take a $1million of treasury bond and use it as collateral for overnight borrowing, I haven't increased my leverage.

As I understood the Japanese Carry Trade, a hedge fund would BORROW at 35 to1, AND THEN take the money and use it as collateral to borrow in Japanese Yen and Japanese interest rates.

Without the initial leverage, the transaction doesn't make much sense to me.

The question I have, then, is who is lending to the hedge fund at 35 to 1?

Or do I have this wrong?