In a short piece from the WSJ today, it claims that carry trade is back. Carry trade is an investment process by which investors borrow currencies with a low cost such as the yen (with their key rate at 0.1% level) and then investing that in a currency with a higher interest, such as the Brazilian real, as the country is known for high interest rates. This could give the currency where money is invested in a boost, while it might serve as downer for currencies borrowed.
After flourishing during the boom years, the trade all but disappeared as big currency swings led to heavy losses amid the financial crisis. Now, though, as markets calm down and as some central banks signal interest-rate increases while others hold rates near zero, hedge funds and other investors are wading back in.
“It’s starting to come back,” says Stephen Jen, a managing director at BlueGold Capital Management LLP in London. “Investors are starting to think about rate hikes, which makes such trades more relevant and attractive.”