Emerging market carry trades have notched their longest winning run since 2008, driven by high yields in developing-world currencies. Investors borrow cheaply in dollars, yen, or euros to fund positions in higher-yielding assets like the Turkish lira, where returns can exceed 40%. The trade has returned roughly 22% since late 2024, outpacing traditional bond sectors.

A weakening dollar and attractive spreads have amplified gains, with specific regions like one nation offering 12% bond returns and 45% currency appreciation. Even in another region, where local currency has depreciated significantly against the dollar, yields above 32% have kept investors profitable. The US Treasury's recent long-dated debt buyback has further fueled the trend.

Analysts suggest that central banks maintaining high policy rates to combat post-pandemic inflation continue to underpin these strategies. However, risks remain, including potential overcrowding and the threat of rising US interest rates strengthening the dollar. Despite these headwinds, recent economic data and Federal Reserve commentary suggest delays to any policy tightening, supporting the current favorable environment for emerging market carry trades.