Commerzbank’s Michael Pfister highlights that both G10 and Emerging Market (EM) carry trades have posted strong paper gains recently, with performance boosted by Iran-related market moves and high-yield currencies such as the Brazilian Real and Mexican Peso [1]. According to Pfister, G10 carry trade strategies have outperformed pure interest income in the first quarter of the year, primarily due to favorable exchange rate movements rather than the inherent strength of the strategy itself [1].
Pfister notes that the Bloomberg EM Carry Trade Index has demonstrated exceptionally strong performance since the beginning of 2025, reflecting the popularity and recent success of EM carry trade strategies [1]. However, he cautions that these gains are largely driven by interest income, while the exchange rate component is still recovering from poor performance in 2024 [1].
Despite the recent positive results, Pfister emphasizes that there is no empirical evidence supporting systematic long-term outperformance of carry trade strategies. He advises market participants to remain cautious, as the durability of these war-driven gains is questionable and alternative strategies may have been more effective during such periods [1].
No specific market reactions or analyst forecasts beyond these cautionary statements are provided in the article [1].
CONCLUSION
Commerzbank’s analysis suggests that recent carry trade gains are primarily interest-driven and may not be sustainable in the long term. Investors are urged to exercise caution, as the exchange rate component is still recovering and there is no evidence of consistent outperformance for carry trades.