Volatility Plunge Drives 12% Carry Trade Return in 2026
Yen-funded carry into Brazilian real, Colombian peso and Turkish lira returned about 12% in 2026, the best annual start since 2023 as currency volatility plunged. RBC Capital Markets and other major banks are urging clients to boost allocations to these high-yielding commodity-linked currencies.
1. Volatility Collapse Spurs Carry Trade Gains
A sharp drop in currency, bond and equity volatility has turbocharged traditional carry trades, with a yen-funded basket of Brazilian real, Colombian peso and Turkish lira delivering roughly 12% returns in 2026. This marks the strongest start since 2023, as investors regain confidence that exchange rates will remain stable.
2. Major Banks Recommend Increased FX Exposure
RBC Capital Markets strategist Luis Estrada, alongside teams at Citigroup and Goldman Sachs, is advising clients to increase exposure to high-yielding commodity-linked currencies. Recommended strategies include borrowing in yen to fund positions in the real, peso, lira and other emerging-market currencies with strong carry attributes.
3. Ceasefire Improves Risk Appetite
The recent Middle East ceasefire has eased geopolitical tensions, reducing abrupt swings in financial markets and reigniting risk-on sentiment. Improved stability is underpinning renewed demand for yield-seeking strategies across currencies, bonds and equities.