Inflation Is Killing the Dollar Carry Trade in Emerging Markets
- Carry return index has dropped over 4% over past two months
- Inflation pressures bode badly for carry-trade outlook: TD
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A short-lived reprieve for emerging-market carry trades funded in dollars looks to be over, with an upsurge in U.S. inflation making the outlook increasingly treacherous.
A Bloomberg index of these bets has dropped more than 4% in the past two months, the biggest slide since March 2020 for a strategy of borrowing in the greenback and investing in developing-nation currencies. The quickest U.S. inflation in three decades is putting pressure on the Federal Reserve to tighten, raising the prospect of higher costs for dollar borrowers, and less extra yield -- or carry.