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Home News Markets

Why Investors Are Flocking to Carry Trades Right Now

by Team Lumida
May 24, 2024
in Markets, News
Reading Time: 3 mins read
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Why Investors Are Flocking to Carry Trades Right Now
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Key Takeaways:

  1. Carry trades thrive on low volatility and interest rate differences.
  2. UBS, JPMorgan, and Societe Generale back high-yield strategies.
  3. Emerging markets like Mexico and Brazil offer lucrative opportunities.

What Happened?

Wall Street strategists are increasingly recommending carry trades, capitalizing on the income from higher-yielding currencies and bonds. UBS suggests selling Swiss francs to buy US and Australian dollars. Societe Generale favors riskier European government bonds, and Pictet Asset Management invests in local-currency bonds from Mexico and Brazil.

A Bloomberg index tracking carry trades in developed currencies has returned nearly 7% this year, the best performance since 2009. The Federal Reserve’s decision to rule out further rate hikes has bolstered this strategy, as it reduces potential market volatility.

Why It Matters?

Carry trades thrive in low-volatility environments, providing investors with a way to earn higher returns without excessive risk. The Federal Reserve’s stance on rate hikes signals a stable market, encouraging more investors to adopt this strategy.

Emerging markets, particularly in Latin America, are proving lucrative. The Chilean peso and Mexican peso are leading the charge, buoyed by higher commodity prices and cautious central banks. As inflation remains sticky and growth limits policy cuts, carry trades offer a reliable income stream.

What’s Next?

Traders will closely monitor Commodity Futures Trading Commission (CFTC) data for signs of increased carry trade activity. As volatility remains subdued, the strategy is expected to gain further traction. Investors should watch for central bank decisions and economic indicators that could impact interest rates and currency values.

With emerging markets showing strong returns, particularly in Latin America, opportunities abound for those looking to capitalize on carry trades. Societe Generale and JPMorgan also highlight the potential in riskier European government bonds, suggesting a diverse range of profitable avenues for savvy investors.

This trend underscores the importance of understanding global interest rate differentials and market volatility when building an investment portfolio. Keep an eye on the MOVE index, a key gauge of future rates market volatility, which has declined to its lowest since early 2022, indicating a favorable environment for carry trades.

Source: BBG
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© 2025 Lumida Wealth Management LLC is an SEC registered investment adviser. Privacy Policy. Cookies Policy.
Disclaimer Important Information This site is for informational purposes only. Information presented on this site does not constitute as investment advice.

Lumida Wealth Management LLC (‘Lumida”) is an SEC registered investment adviser. SEC registration does not constitute an endorsement of the firm by the Commission nor does it indicate that the adviser has attained a particular level of skill or ability.

Lumida's website (referred to herein as the "Website") is limited to the dissemination of general information pertaining to its advisory services, together with access to additional investment-related information, publications, and links. Accordingly, the publication of the Website on the Internet should not be construed by any client and/or prospective client Lumida’s solicitation to effect, or attempt to effect transactions in securities, or the rendering of personalized investment advice for compensation, over the Internet.

Any subsequent, direct communication by Lumida with a prospective client will be conducted by a representative that is either registered or qualifies for an exemption or exclusion from registration in the state where the prospective client resides.

‍Lead Capture Forms: By submitting your contact information in the forms on this site, you are not obligated to invest in Lumida's product or services.
‍Address: Lumida Wealth Management, 25 W 39th Street Suite 700, New York, NY 10018