Carry Trades Are Having Their Strongest Year in Decades

An emerging-market carry strategy—borrowing in euros to invest in higher-yielding currencies such as the Brazilian real, Colombian peso, and Turkish lira—is up 18% year to date , its strongest start since 2005.
By comparison, a G10 carry strategy using low-yielding currencies such as the euro, Danish krone, and Swiss franc to fund positions in the New Zealand dollar, Norwegian krone, and Canadian dollar has returned 8% .
Low currency volatility and a resilient global economy, despite the Iran-driven oil shock, have encouraged investors to keep adding exposure.
Risk appetite in the FX market is surging—but carry trades remain vulnerable to any sudden spike in volatility or sharp currency reversal.