💱🔺High-Yielders Lead G10FX Gains In May: Cable FX Macro

• The chart below shows a scatter plot of G10FX 3M deposit rates (yield) vs its May percentage returns to the dollar. Generally, the high-yielders outperformed the lower deposit rate currencies, a trading strategy trying to take advantage of this differential is better known as carry.

• A measure of G10FX carry basket compiled by Bloomberg surged 1.4% on the month, its best performance since December and a rebound from the 3.9% loss recorded in April.

• Carry strategies do not do well under high-volatility regimes, the spike in April is a clear example of this. However, volatility benchmarks retraced heavily in May, this is why the carry factor outperformance does not come as a surprise to traders. The CBOE VIX Index dropped 6.13 points in May to 18.57, its worst month since November.

• Finally, I want to note the Cable FX Macro Composite Model ranking going long GBP and short JPY as top factor signals in May. This trade gained 1.7% in May.