The EM Quant Strategist: The Carry-Ons Are Packed

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The EM Quant Strategist: The Carry-Ons Are Packed

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The EM Quant Strategist

The Carry-Ons Are Packed

EMFX: Low DXY betas, rising dispersion = carry filling up 21 July 2026

The median EM currency’s beta to DXY is near post-Liberation Day lows, and the The EM Quant Strategist

strength of shock transmission across the EMFX vol complex has fallen to its 15-year EEMEA

median, suggesting that long carry positions are getting entrenched. However, even GEMS FI/FX Strategy & Economics

though EMFX is ~12% overvalued, we are well below pre-Iran war levels of dispersion Raghav Adlakha

and sentiment, suggesting carry can continue performing absent a global catalyst. EM Quant/Sovereign Strategist

Strongest signals: Long BRL, COP, Short TWD, THB. MLI+44 (UK)20 7995 9019

raghav.adlakha@bofa.com

Rates: Pick up trend pennies before the value steamroller David Hauner, CFA >>

Trend currently supports receivers across EM, but the asset class remains at the mercy GlobalMLI (UK)EM FI/FX Strategist

of global factors, with cross-market trend covariance near late-2022-highs. Scope 90 +44 20 7996 1241

suggests there is little-to-no medium-term value in EM rates. Summer seasonality may david.hauner@bofa.com

continue to support receivers, but the risk-reward is asymmetrically negative.

Strongest signals: Pay CZK 2y/Receive ILS 2y.

EM EXD: Rich, but bottled supply keeps a lid on spreads

Despite their relative widening, EM EXD spreads remain rich to US HY. While this can be

partially explained by improving fundamentals, the median credit is still rich to rating.

However, July-Aug are weak periods for supply, which may help anchor spreads through

the summer. Strongest signals: MEX 30Y vs 10Y, long KAZAKS 10y.