The big bet that could melt Wall Street (Grace Wong)

  A look at the 'yen carry trade' and why so many investors are starting to worry it might unravel.

  By Grace Wong -- CNNMoney.com

  March. 6, 2007 -- NEW YORK (CNNMoney.com) -- As investors wonder if the global market selloff is reaching a bottom, economists are keeping a close eye on one big trading bet that could send more seismic tremors through Wall Street.

  For more than a decade, investors have profited by borrowing yen at ultra-low interest rates and using the funds to buy higher-yielding investments based in other currencies - known in Wall Street parlance as the yen carry trade.

  But last week's market swoon has brought risk back into focus, and a number of these borrowers have been unwinding those trades lately.

  "There's been complacency and under pricing of risk across the board," said Nouriel Roubini, chairman of Roubini Global Economics, a research firm. But now many big investors, as well as policy-makers, are bracing for more volatility in the markets, he said.

  While the yen carry trade grew popular after Japan started holding interest rates steady near zero six years ago, it's only recently that a variety of hedge funds, insurance companies and mutual funds are getting out of those bets - and removing a key source of support for stocks.

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