G10 Carry Trades Gain 4% YTD, Best in Years

Currency carry trades among Group of 10 developed economies are posting their strongest gains in years, with a strategy of buying the five highest-yielding currencies and selling the five lowest returning more than 4 percent so far this year without leverage, according to Citi calculations.

The performance stands out amid global market turbulence, including surges in energy prices and declines in government bonds linked to the Iran war. Low currency volatility and wide interest rate gaps have fueled the trades, unlike the near-zero rates across economies during the COVID-19 pandemic or the lack of profitability in developed market carry strategies since the global financial crisis.

"Since the global financial crisis a developed market carry trade hasn't made any money, so this uptick that we have seen is unusual," said Kristjan Kasikov, Citi's head of FX quant investor solutions. "It's quite remarkable in this year of uncertainty and shifting sentiment."

Australia and Norway lead the high-yield pack, with policy rates above 4 percent as both central banks hike. Britain's rate sits just below that level, while Japan's is under 1 percent and Switzerland's is at zero. The Australian...