The emerging-market carry trade has delivered exceptional returns, earning 22% since the end of 2024 according to a Bloomberg gauge of eight major EM currencies. This performance has been sustained for seven consecutive quarters, marking the longest winning streak since 2008. The trade, which involves borrowing in low-interest currencies like the US dollar and investing in higher-yielding emerging markets, has significantly outperformed traditional bond investments. As per Hawk Insight, carry trades funded in US dollars are experiencing their longest consecutive rise since 2008 and have achieved positive returns for the seventh consecutive quarter.
The carry trade's performance has substantially outpaced other major global bond classes. US Treasuries earned just 5.9% over the same period, while dollar bonds from developing world governments returned 14% and EM corporate debt 10%. The strategy has been amplified by a weakening US dollar against major emerging-market currencies outside Asia and cheapening versus low-rate peers like the euro and Swiss franc. According to Hawk Insight, emerging market carry trades have recorded returns of approximately 22% since the end of 2024, easily outperforming all other major categories of global bond trading.
Colombia has emerged as a standout performer, offering 12% bond returns with 45% spot appreciation. Turkey's elevated local bond yields continue to benefit investors despite currency challenges, with yields above 32% on 10-year local bonds keeping investors in profit even as the lira has lost 26% against the dollar. According to reports from The Economic Times, these markets exemplify the carry trade's ability to generate returns through both yield differentials and currency movements.
Cathy Hepworth, who heads $1.5 trillion asset manager PGIM's emerging-markets debt team, emphasizes the current market environment. As reported by The Economic Times, she states "There's a ton of money looking for yield" and describes the current period as "a carry world." The strategy involves borrowing cheaply in currencies like the US dollar, Japanese yen, or euro, and investing in higher-yielding currencies where interest payments can reach as much as 40%. According to Hawk Insight, the current environment reflects a carry world where investors are seeking yield-generating opportunities across emerging markets.
