Golden era of carry trades

Carry trades are one of the most widely-used strategies in the $9.5 trillion-per-day currency market. Goldman Sachs says they are currently seeing the most compelling backdrop in more than two decades.

Borrowing in a relatively low-yielding currency and investing in one where yields are higher bears more relevance in the Group of 10 foreign-exchange space than at almost any point since 2000, strategist Stuart Jenkins wrote in a report. Goldman currently favors funding such trades using the yen, Swiss franc or euro in the months ahead, he said.

Several factors have catapulted the carry trade’s appeal. Goldman said interest rates across the world’s biggest developed economies have settled at high and varied levels, creating unusually wide yield gaps for investors, while currency volatility has dropped to historically subdued levels.

That combination has helped G10 FX carry trades return about 8% this year, beating global bonds, gold and Bitcoin, though still trailing stocks, according to data compiled by Bloomberg. —David E. Rovella