Global Bond Market Volatility Spills Over, Latin American Currency Carry Trades Unwound

[Global Bond Market Volatility Spills Over, Latin American Currency Carry Trades Unwound]

(1) Institutional views indicate that recent fluctuations in global government bond yields are beginning to spread to the foreign exchange market, with G10 FX volatility gradually rising.

(2) This is prompting the market to unwind carry positions in Latin American currencies, with the Chilean peso and Mexican peso being the two worst-performing currencies so far in October.

(3) Carry trades involve borrowing low-yielding currencies to invest in high-yielding ones.

(4) The dollar fell 0.1% against the Mexican peso to 18.3842, after hitting an 11-month high of 18.6060 on Wednesday.

(5) The dollar fell 0.1% against the Chilean peso to 980.00, after reaching a nearly 18-month high of 994.68 earlier this month.

(6) Going forward, attention will focus on whether global bond yield volatility continues to spill over, and on further pressure on Latin American currencies and high-yielding currencies from carry trade unwinding.