'It's a Carry World': EM trade notches longest run since 2008
The carry trade landscape in emerging markets is shining brightly, leading to remarkable returns for investors. This approach, which entails borrowing in low-interest currencies and investing in higher-yielding emerging markets, thrives as the US dollar softens against numerous emerging market currencies. Colombia stands out with appealing bond returns and substantial currency gains, while…
The latest report reveals that carry trades in emerging markets have reached their longest winning streak since 2008, providing positive returns for the seventh quarter in a row. Cathy Hepworth, the head of emerging-markets debt at PGIM, emphasizes the importance of this strategy, stating that there is a significant amount of capital seeking yield.
This trend is fueled by a weakening US dollar compared to other major currencies used in carry trades, such as the Turkish lira, Japanese yen, and euro. Hepworth notes that returns have been boosted by the dollar's depreciation against major emerging-market currencies outside Asia and a cheaper dollar compared to low-rate peers like the euro and Swiss franc.
This situation has proven lucrative, with emerging-market carry trades yielding about 22% since the end of 2024, outperforming other asset classes like US Treasuries (5.9%), dollar bonds from developing world governments (14%), and EM corporate debt (10%).
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