Most commentators think that the major cause of the gilt-market crash was the Liz Truss government’s “mini-budget”. The fact that gilts have now recovered most of their dramatic losses is widely interpreted as confirmation that “Trussonomics” was the problem.
While Truss’s policies were unwise, this perspective misunderstands how financial markets work. They are manifestations of leverage more than they are reflections of, or predictions about, the economy. In the book my co-authors and I argue that this leverage can mostly be understood in terms of carry. Carry trades
