Global Carry Trade Unwind Extends As Peso Sinks, Yen Surges
The yen pushed higher Monday, while the Mexican peso’s slump extended as traders continued to unwind emerging market carry trades.
![Japanese 10,000 yen and 5,000 yen banknotes arranged for a photograph in Tokyo, Japan, on Friday, May 10, 2024. The Bank of Japan offered to purchase a smaller amount of government bonds in a regular operation on May 13 than it did on April 24 as it seeks to reduce its presence in the country’s debt market. Photographer: Noriko Hayashi/Bloomberg](https://media.assettype.com/bloombergquint%2F2024-08%2F93276b38-c719-4a17-b0c4-bf0d34520128%2F_1x_1.jpg?auto=format%2Ccompress&w=200)
(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.
![Global Carry Trade Unwind Extends As Peso Sinks, Yen Surges](https://media.assettype.com/bloombergquint%2F2024-08%2F72218f0a-dbcf-47bb-8797-20cc4a6adc9f%2F_1x_1.png?auto=format%2Ccompress)
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.”
More stories like this are available on bloomberg.com
©2024 Bloomberg L.P.