The backdrop for currency carry trades is the most favourable it has been in more than 20 years, as wide interest rate differentials and subdued foreign exchange volatility create attractive opportunities for macro investors, according top a report by Bloomberg.
In a new research note, Goldman strategist Stuart Jenkins said conditions for G10 currency carry strategies are stronger than at almost any point since 2000. The bank expects the Japanese yen, Swiss franc and euro to remain the preferred funding currencies over the coming months due to their relatively low interest rates.
Carry trades, which involve borrowing in a low-yielding currency to invest in one offering higher returns, have benefited from an environment in which developed market interest rates remain elevated but increasingly stable. At the same time, currency market volatility has fallen to some of its lowest levels in recent years, improving the risk-reward profile for the strategy.
According to Bloomberg data, G10 currency carry trades have returned around 8% so far in 2026, outperforming global bonds, gold and Bitcoin, although equity markets have delivered stronger gains.
Goldman attributes the favourable conditions to the combination of persistent yield dispersion across developed economies and reduced expectations for significant central bank policy shifts, both of which have helped suppress exchange-rate volatility.
The strategy remains popular with hedge funds, asset managers and other institutional investors seeking to capture interest rate differentials. However, Goldman cautioned that carry trades remain vulnerable to sudden spikes in market volatility, which can rapidly reverse gains as investors unwind leveraged positions.
Other market participants have also highlighted the potential risks. Barclays recently warned that the current calm in foreign exchange markets appears inconsistent with elevated geopolitical and macroeconomic uncertainty, suggesting volatility could increase from current levels.
Interest rate spreads continue to support carry opportunities. US two-year Treasury yields remain above 4%, compared with approximately 2.6% in Germany, 1.4% in Japan and close to zero in Switzerland, leaving sizeable yield differentials across major developed markets.
Among its preferred longer-term funding currencies, Goldman continues to favour the Japanese yen. While acknowledging the possibility of intervention by Japanese authorities, the bank believes the currency is likely to remain under pressure unless the broader macroeconomic outlook changes materially.
Goldman also identified several preferred currency positions, including long US dollar versus Swedish krona. In more risk-neutral portfolios, it favours long euro against the Swiss franc, citing the pair’s attractive carry-to-volatility characteristics, while also highlighting opportunities in long Australian dollar versus New Zealand dollar positions.
The bank said currency carry strategies can continue to provide attractive income opportunities within diversified multi-asset portfolios, particularly while interest rate differentials remain wide and foreign exchange volatility stays contained.
For multi-manager hedge funds such as Balyasny, dedicated ECM teams play an increasingly important role in sourcing allocations to IPOs, block trades and secondary offerings, while maintaining relationships with investment banks arranging equity issuance.
As competition for allocations in high-profile transactions intensifies, experienced ECM professionals have become valuable hires for hedge funds seeking to capitalise on primary market opportunities across Asia.
