Citigroup's Carry Trade Exit Stokes Volatility in Emerging Markets

The recent surge in US Treasury yields has put pressure on carry trades that have been popular among emerging-market investors this year. The strategy involves taking long positions in currencies with high interest rates, such as the South African rand, Mexican peso, and Colombian peso, against currencies like the Canadian dollar and Swiss franc. However, Citigroup Inc. recently closed its carry basket, citing volatility in markets after a strong US PMI report, a weak 5-year Treasury auction, and geopolitical headlines.

The move by Citigroup is significant because it was one of the largest players in this strategy. The decision to close the basket was made on Thursday, according to a note from the bank. This comes as US Treasury yields have reached their highest levels in decades, making it more expensive for investors to maintain carry trades.

The impact of this move is still being felt, and it remains to be seen how other players will react. Some investors may see this as a sign that the carry trade has become too risky, while others may view it as an opportunity to buy in at lower prices.