- Home
- >
- Fundamental Analysis
- >
- Carry traders on profit, volatility in emerging markets falls to new lows
Carry traders on profit, volatility in emerging markets falls to new lows
Rating:
Loading...Carry traders make profits, while EM sector currencies fall to a seven-month low.
Buying higher yielding currencies of developing nations borrowing dollars brings a return of 8.5%. This has been happening since last September, when the FED justified the expectations for a somewhat more aggressive stance on interest rates and renewed hopes for an agreement between the US and China. The one-month volatility has fallen for 20 out of 23 currencies from the sector, followed by the Bloomberg index, which measures carry yield for all three regions.
Skeptics, of course, have doubts about how long the good times will last. They raise particular concerns that focus on the chances of sudden changes in these currencies. When the volatility leaps, every carry trader will run away. Maintaining good liquidity is a priority, with the most volatile Turkish pound, followed by the Indonesian rupee, the Indian rupee, the Mexican peso, and the Russian ruble.
Buying a Mexican Pound with borrowed dollars has yielded more than 3% of its yields in the new year and 6% in the past. The winner for this year, however, appears to be Russia, which has now reported a return of 6%.
Brendan McKenna, a currency strategist at Wells Fargo, also prefers the Mexican peso and the Indonesian rupee to carry yields, but warns about stagnant big bets because of the risks of a sharp rise in volatility.
There are enough catalysts that would cause huge levels of volatility, and when that happens, the carry traders are writing very badly.
Source: Bloomberg Finance L.P.
Graphs: Used with permission of Bloomberg Finance L.P.
Trader Martin Nikolov Read more:
If you think, we can improve that section,
please comment. Your oppinion is imortant for us.
