I was trying to respond to some of the other posters who possibly haven’t thought about this as much as you have. I may have hit reply to yours.
Lets keep the posts constructive…argue substance all you want, but there’s no need to be condescending.
On your point about the shape of the yield curve: Typically, I’d agree, you wouldn’t want to buy the longer duration maturities without a bigger spread. That said, I’m sure you’ll recall from finance 101 that the yield of a longer term bond is a function of the the shorter term yields. If the short term bond is 0.76%, then the implicit assumption is that the 3-5 year yield is probably 2.5% or 3% if the 5 year is yielding 1.5%, which, though still low and possibly not sufficient for the risk undertaken still may make sense.
You’ll recall from the book that the author bets on events that are very unlikely. Making money in the carry trade will make you short amounts for a long time, but you’ll lose your shirt when the currency makes a big move against you…that’s the significance.
I look forward to a brilliant reply, which I’m sure will confuse my infantile mind though articulated by your superior one into the simplest possible terms.
