Rising intervention risk and higher rates have weakened yen funding, pushing
carry traders toward Swiss franc financing. CFTC data for the week to Aug. 11
show hedge funds’ net short positions in the franc near a two-month high while
they trimmed yen shorts for a second consecutive week. Tobias Jungmann, head of
FX options at BofA in New York, said markets have increased franc short exposure
to finance FX carry trades and that options are attractive given the franc’s
vol-to-carry profile, allowing exposure with capped downside. The franc’s appeal
rests on near-zero Swiss interest rates and the Swiss National Bank’s
willingness to limit appreciation; by contrast, a late-July Japan–U.S. joint
intervention raised yen volatility and curbed yen-funded trades.
