The Carry Trade Is Heating Up as Fed and ECB Get More Dovish
- Gains from funding emerging-market FX with dollars have risen
- Negative yields on $13 trillion of debt worldwide fuel demand
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As dovish central banks stoke negative yields throughout developed nations, it’s become more tempting for yield-hungry investors to borrow U.S. dollars and euros to buy riskier emerging-market currencies.
Purchasing such assets with dollars is generating the best returns since May 2018, according to a Bloomberg index that tracks so-called carry-trade returns from eight developing markets funded by greenback short positions. One example of what’s been working: Argentine peso bets using dollars are reaping about a 15% gain this year, and this jumps to 20% with euros.