Hedge funds have expanded net short positions in the Swiss franc to the highest level in nearly two months, according to data from the U.S. Commodity Futures Trading Commission covering the week to Aug. 11.
The shift reflects growing demand for alternative funding currencies as yen-based carry trades lose appeal following recent market interventions. Analysts note that traders are increasingly borrowing in the Swiss franc, where interest rates remain near zero, to finance investments in higher-yielding currencies.
"The market has recently built up short positions in the Swiss franc to fund carry trades," said Tobias Jungmann, strategist at Bank of America in New York. The favorable risk-return profile of options linked to the franc has further supported this trend, allowing investors to participate in carry trades while limiting exposure to volatility.
A carry trade involves borrowing in a low-yielding currency to invest in higher-yielding assets, profiting from the interest rate differential. The Swiss franc’s attractiveness stems from Switzerland’s near-zero interest rates and the Swiss National Bank’s willingness to curb excessive appreciation.
The yen, historically the dominant funding currency for carry trades, has seen reduced demand following coordinated interventions by Japan and the U.S. in late July. The volatility spike and heightened policy uncertainty in Japan have made traders cautious, despite the Bank of Japan’s 1% policy rate remaining below most developed-market peers.
"There are still yen carry trades, but after the large interventions this year, people are more careful," said Stephen Jefferies, FX strategist at JPMorgan Chase in London. The yen has retraced more than half of its post-intervention gains, reflecting lingering concerns over Japan’s fiscal sustainability.
Investors who borrowed in francs to fund positions in high-yielding currencies such as the Mexican peso earned nearly 4% last month, compared with 1.3% for similar yen-funded trades, Bloomberg data show. The franc’s stability and the SNB’s intervention readiness have reinforced its appeal as a funding currency.
While the yen retains some followers, analysts expect the franc to remain the preferred alternative. "Carry trades with the Swiss franc are currently more popular," said Steve Brice, chief investment strategist at Standard Chartered in Singapore. "Most of the activity is coming from there right now."
The shift underscores how policy divergence and intervention risks are reshaping global carry trade strategies, with the franc emerging as a key beneficiary.
