---
canonical: true
last_updated: 2026-08-10
session_id: 2026-08-10-block-027-open
prior_session: 2026-08-09-block-026-open-resume
current_block: 027
current_block_slug: fx-carry-trades
block_status: ○ queued
phase: 1
pre_block_probes_fired: 0
pre_block_probes_clean: 0
substrate_status: not yet probed
targets_pending:
  - target_1_carry_trade_construction
  - target_2_volatility_drag
  - target_3_carry_unwind_asymmetry
  - target_4_pm_implications
anki_queue:
  card_count: 0
  cards: []
pre_reads:
  - source: menkhoff_sarno_schmeling_schrimpf_2012
    title: "Carry trades and global FX volatility"
    type: academic
    time_min: 25
    status: teach-delivered-2026-08-11
    teach_artifact: blocks/_pre-read-teaches/027-fx-carry-trades-pre-read-teach-2026-08-11.md
  - source: bis_bulletin_90
    title: "The market turbulence and carry trade unwind of August 2024"
    type: institutional
    time_min: 10
    status: teach-delivered-2026-08-11
    teach_artifact: blocks/_pre-read-teaches/027-fx-carry-trades-pre-read-teach-2026-08-11.md
  - source: bis_bulletin_124
    title: "Monetary policy transmission to exchange rates: the role of currency carry trades"
    type: institutional
    time_min: 10
    status: teach-delivered-2026-08-11
    teach_artifact: blocks/_pre-read-teaches/027-fx-carry-trades-pre-read-teach-2026-08-11.md
pre_read_substitution_note: "Pre-emptive teach-first (per macro-mentor teach-pre-reads.md). User opted to have substrate taught by mentor instead of reading. Verification gate at next open: 'did you do the read OR get the teach?'."
anki_cards_pushed:
  - date: 2026-08-11
    count: 15
    deck: "Macro Study::Phase 1 — Components::FX"
    first_note_id: 1786448537065
    last_note_id: 1786448537420
carry_forwards:
  - carry_trade_direction_locked_borrow_low_invest_high
  - carry_interface_trade_rate_differential_vol_regime
  - three_layer_alignment_diagnostic_vol_rate_positioning
  - carry_unwind_positioning_vs_funding_aug_2024_vs_2008_2020
  - trade_construction_go_against_crowded_carry
  - basis_is_separate_diagnostic_not_carry_pnl_line
patterns_to_load:
  - pattern_11_mechanism_cold_recall
  - pattern_18_mechanism_not_calculation_probes
---

# Block 027 — FX carry trades (open resume)

**Status:** ○ queued. Pre-reads assigned (~45 min). Pre-block probes not yet fired.

## Pre-reads (canonical)

- **Menkhoff, Sarno, Schmeling, Schrimpf (2012) "Carry trades and global FX volatility"** — Journal of Finance (~25 min). Academic substrate for carry trade P&L: volatility drag, carry-to-risk ratio, conditional distribution of carry trade returns.
- **BIS Bulletin #90 (Aquilina et al., August 2024 yen carry unwind)** (~10 min, re-read for carry construction). Block 026 used this for unwind patterns; Block 027 reframes for funding-currency selection.
- **BIS Bulletin #124 (2025 state-dependent monetary policy transmission)** (~10 min, re-read for carry construction). Funding-currency selection + carry asymmetry.

Detailed skip list and compliance convention in `blocks/027-fx-carry-trades.md` `## Plan` section.

## Targets (provisional, refine at next session open)

- **Target 1:** Carry trade construction — high-yielder funded by low-yielder, funding-currency selection, carry-to-risk ratio as sizing input
- **Target 2:** Volatility drag — math of carry < risk-adjusted carry, breakeven vol regime
- **Target 3:** Carry unwind asymmetry — positioning unwinds are faster than funding unwinds, time-to-resolution read
- **Target 4:** PM implications — funding-currency selection rules, position sizing under carry-to-risk, interaction with cross-currency basis (Block 023) and CB reaction functions (Block 024)

## Carry-forwards from Block 026

Six substrate items — see `blocks/026-fx-drivers-carry-unwind-regime.md` `## Carry-forward to next block` for details. Most load-bearing for Block 027: (1) carry direction locked, (2) carry = interface trade, (3) three-layer alignment diagnostic, (4) unwind = positioning vs funding, (5) trade construction, (6) basis is separate diagnostic.

## Directive for next session open

1. Pre-read compliance check (per 2026-07-17 convention): user says "done" or "yes", mentor proceeds without per-source verification. Re-probe only if probe loop surfaces substrate as failure cause.
2. Pre-block probes one at a time (Pattern #11, Pattern #18 — no arithmetic probes).
3. If probe fails, teach-first (Pattern #11 + probe-vs-teach fallback).
4. Three-attempt probe discipline (Pattern #15 + 3-attempt rule from Session 39).
5. Block 027 `## Plan` to be re-evaluated at session close (per 2026-07-03 protocol).
6. Anki cards + competence map + coverage tracker updates at block close.

## User feedback applicable this block

- **No arithmetic probes** (Pattern #18, codified Session 40). Mechanism substrate, not calculation.
- **Compact output, no streaming deliberation** (user preference, saved 2026-08-10).
- **Probe without pre-loading the answer** ("you just provided the answer followed by the question", Session 42).
- **Basis is separate diagnostic, not carry P&L line** (Session 42 user clarification).
- **Single source of truth** = resume file frontmatter. Do not recreate `_meta/current-block.md` or `pre-reads.md` (Session 41 triage removed both; this file is the canonical pointer).