OFR Monitor Shows Rising FX and Sovereign Debt Exposure

Office of Financial Research sent this bulletin at 12/23/2024 01:06 PM EST

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OFR Monitor Shows Rising FX and Sovereign Debt Exposure

Authors: Ted Berg, Neth Karunamuni, Daniel Stemp

Hedge fund exposures to FX and foreign sovereign debt reached record levels in Q3 2024. The FX increase was driven by directional, as opposed to hedged, positions using derivatives. The yen carry trade is one example of a directional FX trade. Higher foreign sovereign debt exposures are mostly due to macro and multi-strategy funds playing a larger role in these markets. Concentration in foreign sovereign debt among the largest funds also increased.

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