A renewed wave of carry trades in emerging markets is driving investor confidence, fueled by strong performance in Bitcoin and widening interest rate differentials. The EM Emerging Markets Index has gained 12.3% year-to-date, supported by favorable dynamics in currencies like TRY/USD and USD/JPY.
- BTC/USD surged 41.7% in 2025 following U.S. spot ETF launches
- EM Emerging Markets Index up 12.3% year-to-date
- TRY/USD depreciated 6.8% in Q3 2025, rebounded 8.4% in October
- USD/JPY traded near 153.20 in late 2025
- Carry trade strategies gaining traction amid widening interest rate differentials
- Market optimism extends into 2026 based on strengthened EM fundamentals
The revival of carry trades across emerging markets has become a defining trend in global capital flows, with investors increasingly borrowing in low-yielding currencies to invest in higher-returning assets in developing economies. This strategy has gained momentum since early 2024, when the U.S. launched spot Bitcoin ETFs, catalyzing a 41.7% rally in BTC/USD through mid-2025. The surge in digital asset valuations has injected risk appetite into broader financial markets, indirectly boosting EM equities and local debt securities. The EM Emerging Markets Index has risen 12.3% year-to-date, reflecting improved capital inflows and reduced risk premia. Currency pairs such as TRY/USD have seen notable volatility, with the Turkish lira depreciating 6.8% against the dollar in Q3 2025 but rebounding 8.4% in October amid central bank tightening and improved fiscal stability. Meanwhile, USD/JPY has traded near 153.20, benefiting from Japan’s extended low-rate environment and a persistent yen carry trade dynamic. Market participants are now positioning for sustained momentum into 2026, particularly in EM segments with strong macro fundamentals and monetary policy divergence. The combination of Bitcoin’s performance and favorable interest rate spreads has created a fertile environment for leveraged strategies, though heightened volatility remains a risk. Investors are closely monitoring central bank signals, especially from the Fed and BoJ, to gauge the longevity of current trade conditions.