Global Carry Trade Unwind Extends As Peso Sinks, Yen Surges

(Bloomberg) -- The yen pushed higher Monday, while the Mexican peso’s slump extended as traders continued to unwind emerging market carry trades.

The peso fell as much as 2% against the dollar in Asian trading, extending its loss into a third straight day. The slump came as the yen surged as much as 0.8% while China’s yuan strengthened, two currencies used to fund carry trades. 

The sudden appreciation in funding currencies has damaged the popular carry strategy, which typically involve traders borrowing at lower rates in developed markets to invest in higher-yielding assets in the emerging world.

What’s a Carry Trade? When Does It Not Make Money?: QuickTake

“Over recent months this strategy has hit a brick wall both on the asset side (e.g. Mexican election results in June undermined the peso) and since last month, on the yen-funding side, too,” wrote ING strategists including Chris Turner in a note Friday. Higher volatility has also “forced the downsizing of positions.”

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