Hedge funds’ returns were found to be partly driven by carry trade payoffs. BIS figures showed that speculative trading on yen weakness in futures traded in the US rose from the middle of 2006 to late February 2007, especially during yen depreciation. This is the first time the BIS has measured the effect of carry trades on the foreign exchange market.
However, BIS researchers Patrick McGuire and Christian Upper warned it was difficult to measure the size and importance of the trade, due to incomplete data on carry positions and trading activity. "Hedge fund returns appear to be sensitive to carry trade payoffs, but the results are far from conclusive," they wrote.