Emerging Market Carry Trade Sees Extended Calm Emerging market currencies have shown lower volatility than G7 currencies for nearly 200 consecutive days, marking the longest such streak since 2008. This sustained period of stability is supported by factors such as a weaker US dollar, high commodity prices, and significant capital inflows driven by carry trades, according to financial experts like Cathy Hepworth.
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Emerging Market Carry Trade Sees Extended Calm Emerging market currencies have shown lower volatility than G7 currencies for nearly 200 consecutive days, marking the longest such streak since 2008. This sustained period of stability is supported by factors such as a weaker US dollar, high commodity prices, and significant capital inflows driven by carry trades, according to financial experts like Cathy Hepworth.
- One key takeaway is that emerging market currencies have exhibited lower volatility than their G7 counterparts for almost 200 straight days, a trend not seen since 2008.
- Another significant point is that Cathy Hepworth, Head of PGIM Fixed Income's Emerging Markets Debt Team, has identified the carry trade as a high-conviction theme in the developing world.
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The carry trade strategy in emerging markets is currently experiencing its most extended positive run since 2008, drawing attention from global investors. This strategy involves borrowing in currencies with low interest rates, such as the US dollar, Japanese yen, or euro, and investing in higher-yielding emerging market currencies like the Turkish lira. Cathy Hepworth, who leads PGIM Fixed Income’s Emerging Markets Debt Team, has highlighted “carry, carry, carry” as her top theme in the developing world, emphasizing the profitability of this approach.
The unusual calm in emerging market currencies, typically perceived as riskier assets, is a significant factor in the carry trade’s success. JPMorgan volatility indices indicate that developing nations’ currencies have swung less than their Group of Seven peers for nearly 200 consecutive days as of February 2026, a streak that, if it continues, could set a record dating back to 2000. This stability is attributed to a combination of a weaker US dollar, sustained high commodity prices, and robust capital inflows into emerging markets.
While the yen has historically been a primary funding currency for carry trades due to Japan’s low interest rates, investors have diversified to include currencies like the euro and Swiss franc. This diversification has helped maintain the resilience of emerging market carry trades even in the face of interventions aimed at strengthening the yen, such as a joint US-Japan currency intervention in August 2026. Experts suggest that the current market environment, characterized by subdued volatility and resilient global growth, continues to favor carry trade strategies.