Collapsing asset price volatility has turned 'carry trading' into one ...
LONDON - Collapsing asset price volatility has turned ‘carry trading’ into one of investors’ top plays of 2019. Many reckon the run is far from over.
For the trade to work liquidity needs to be plentiful, the global economic backdrop benign and, importantly, currency volatility next to nothing. Broadly, all those conditions seem to be in place. The current environment for carry is “textbook”, says Andreas Koenig, head of foreign exchange at Amundi Asset Management.Koenig has been betting on the Turkish lira and Brazilian real, both of which offer yields well into the double digits.
Yields in Switzerland on the benchmark bond return -0.35 percent; in Germany barely 0.07 percent. But the euro has been particularly popular this year as the struggling economy has further delayed policy tightening plans in the bloc.Analysts say the carry trade is here for a while, or at least as long as rates remain low and economic data is strong, but not so strong it forces a central bank rethink.
But even in a good carry environment, some high-yield trades may not work. For instance, MSCI’s emerging currency index is up 1.6 percent in 2019 after last year’s 3.8 percent drop, but the gains mask individual poor performances.
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