Top Carry Trade Gets Squeezed by Taiwan Dollar’s Advance
- Taiwan dollar implied yield 17 times more negative than yen
- BNP favors offshore yuan-Taiwan dollar as its top carry trade
The Taiwan dollar enjoys a funding advantage of at least three percentage points below the euro and the yen, according to data compiled by Bloomberg.
Photographer: I-Hwa Cheng/BloombergThe Taiwan dollar is the world’s cheapest-funding currency for carry trades, beating out favorites like the euro and the yen and attracting recommendations from Goldman Sachs Group Inc. and BNP Paribas SA. Just watch out for that relentless appreciation.
The currency boasts of an implied yield at least five times more negative than the yen and the euro, making it attractive for carry plays that typically see investors borrow in low-yielding currencies to invest in higher-yielding assets. The catch though is that there are a limited number of trades -- such as against the yuan -- given forecasts for the Taiwan dollar to extend three quarters of gains.