Euro-Funded Carry Trades for Emerging Markets Are Back in Vogue
- Trade-war risks can be avoided using the euro: BofAML’s Piron
- Decline in EM FX volatility has given the strategy a tailwind
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As the emerging-market carry trade roars back, there’s a growing consensus that the euro is the best currency to fund it.
Of 21 potential developing-nation carry trades funded in the common currency tracked by Bloomberg 19 of them made money so far this year, topped by returns of about 8 percent in the ruble. Implied volatility in developing-nation currencies has also dropped to a 10-month low as major central banks including the Federal Reserve turn dovish and amid optimism over a progress in the U.S.-China trade talks, making the strategy attractive.