BNY's Geoff Yu reports that iFlow Carry is beginning to mirror its 2023 upswing, indicating a potential resurgence in carry trade activity as policy divergence persists among major currencies [1]. According to Yu, current neutral positioning in carry currencies, including those funded in the US dollar, suggests there is room for exposures to rebuild, which could signal improved risk appetite in the market [1].
The analysis notes that G10 foreign exchange (FX) markets have attracted broad inflows, while emerging market (EM) FX experienced moderate selling, particularly in the Hungarian forint (HUF), South African rand (ZAR), and South Korean won (KRW) [1]. Latin American FX remains the only region to maintain positive holdings throughout the year, while BNY expresses a preference for selective EM Asia-Pacific high-yielders where balance-of-payments relief supports real rates, and for EMEA duration as a cleaner expression where FX is constrained [1].
Yu emphasizes that neutral holdings in carry currencies are typically short-lived unless risk conditions are exceptional, suggesting that a period of positive significance—where flows align with yield—may be possible going forward [1]. The divergence in flows across regions underscores the ongoing impact of policy differences and shifting investor preferences [1].
CONCLUSION
BNY's analysis points to a potential rebuilding of carry trade positions as policy divergence drives renewed interest in G10 FX and selective EM high-yielders. The current environment suggests improved risk appetite and opportunities for investors, though regional differences in flows remain pronounced.