DBV gives investors a way to play the carry trade, which is gathering steam after a hiatus.
After developed economies reduced their interest rates to practically nothing, emerging markets with interest rates that are around 12.9% higher now look rather enticing, report Kim-Mai Cutler and Bo Nielsen for Bloomberg.
The Latest News
Goldman Sachs has begun recommending carry trades, which had been on their biggest losing streak in three decades. Thank stimulus plans and near-zero interest rates. In some emerging markets and commodity-rich nations, interest rates are as much as 12.9%, or even higher. From March 20 to April 10, the carry trade saw its biggest three-week gain since at least 1999.
How do currencies traders make a profit off “carry trades?” Well, traders use funds from countries with lower borrowing costs to invest in places with higher rates, and they would then reap in the differences in interest rates. Last year, this strategy was abandoned after volatility, as a result of the central bank policies of individual countries, led to large currency swings.
Typically, people would use dollar, euro and yen to buy up currencies from Brazil, Hungary, Indonesia, South Africa, New Zealand and Australia.
- PowerShares DB G10 Currency Harvest (DBV): up 5.4% year-to-date
Max Chen contributed to this article.