Low Volatility and Wide Rate Gaps Revive G10 Carry Trades
Wide developed-market rate differentials and low FX volatility are supporting a strong 2026 backdrop for G10 carry trades, though the strategy remains vulnerable to rapid losses if volatility rises.
MSA market desk
Desk brief
Global currency carry trades are benefiting from an unusually favorable combination of wide interest-rate differentials and subdued foreign-exchange volatility. That backdrop has helped carry strategies outperform several major asset classes in 2026, while investment banks continue to identify low-yielding currencies such as the yen, Swiss franc and euro as potential funding currencies. ([jpmorgan.com](https://www.jpmorgan.com/insights/global-research/outlook/mid-year-outlook?utm_source=openai))
The strategy remains exposed to abrupt reversals. Carry returns accumulate gradually through interest-rate differentials, but a sharp move in a funding currency can force leveraged investors to close positions quickly. Recent market commentary has continued to flag volatility shocks, policy surprises and geopolitical developments as key risks to the otherwise stable environment. ([jpmorgan.com](https://www.jpmorgan.com/insights/global-research/currencies/currency-volatility-dollar-strength?utm_source=openai))
For African markets, the immediate effect is likely to be indirect. Persistent risk appetite and strong demand for higher-yielding assets could support flows into emerging-market currencies and external debt, but a sudden carry-trade unwind would create the opposite pressure through dollar strength, weaker local currencies and wider sovereign spreads.
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