# EM Carry Positioning Hits Record Highs as the Pros Call It Justified - EM FX & the Carry Trade - Week of August 21, 2026 > EM FX and carry-trade newsletter for the week of August 21, 2026. Foreign positioning in Egypt, Nigeria, and Turkey has climbed to or near record highs, and the professionals who measure it call the crowding justified even as BMO's Mark McCormick makes the case for a dollar comeback. ## EM FX & the Carry Trade ### Week of August 21, 2026: EM Carry Positioning Hits Record Highs as the Pros Call It Justified --- Here's the thing about a trade that works for two straight years: eventually everyone is in it, and then the only interesting question left is whether that's a warning sign or just proof the trade was right all along. That's exactly where the emerging-market "carry" trade sits this week. (Carry, in plain terms, is borrowing in a cheap-to-hold, low-yielding currency and parking the money in a high-yielding one: you pocket the interest-rate difference, and pray the exchange rate doesn't move against you.) The professionals came back from their August break, looked at the books, and confirmed what everyone suspected: money has piled into these currencies at or near the most it ever has. Egypt, Nigeria, Turkey: foreign positioning is at or a whisker below all-time peaks. The surprise is the reaction. The desk that maps this stuff for a living didn't ring the alarm. They shrugged and said: this is justified, and positioning will probably go higher still. Meanwhile, the loudest currency strategist on the other side of the argument spent the week making the opposite case, that the dollar's summer swoon is nearly over, and the whole soft-dollar backdrop that makes EM carry sing is running on borrowed time. Two credible desks, two directions. Let's get into it. --- ## TL;DR - *The dollar keeps easing.* The dollar index (DXY, a gauge of the dollar against a basket of major currencies) is down about *2.5% since the end of July* and is back to where it sat in May. That soft-dollar tailwind is the oxygen for the EM carry trade. - *Carry is officially crowded, and the pros say that's fine.* J.P. Morgan's EM desk laid out hard positioning numbers: *Egypt ~$35–36bn* of foreign money in local bonds and bills (only $3–4bn below its pre-war peak), *Nigeria ~$25bn* (an outright record), and *Turkey at all-time-high positioning*. Their verdict: warranted by fundamentals, and likely to climb further. - *The bear case is a dollar comeback, not an EM blow-up.* BMO's chief FX strategist won't call the dollar weak yet ("this is prime time for the dollar") and is targeting *DXY 103* as a near-term peak, on a second-half pickup in US growth and Fed rate hikes. - *The Fed is the swing factor.* J.P. Morgan's US team still thinks the next Fed move is a *hike in December*. Jackson Hole (the Fed's big August symposium) on Aug 28 and the Fed minutes are the events that settle whether the dollar keeps sliding or turns. - *What matters most for EM currencies right now* isn't the messy long end of the US bond market, it's the *US 10-year real yield* (the inflation-adjusted yield), which has finally eased. That, more than the rising oil price, is driving EM currencies. - *Named EM stories were quiet on the podcasts this week.* No dedicated discussion of the yuan, rupee, won, peso, real, rand, lira, or Central Europe. The action was all at the basket level and the dollar backdrop. --- ## What's new ### J.P. Morgan's EM desk: "It's no longer a secret," and the numbers prove it The most useful hour of EM commentary this week came from J.P. Morgan's emerging-markets podcast, [*"EM Fixed Income: Summer of carry, but getting crowded?"*](http://url7324.matterfact.com/ls/click?upn=u001.idHmPrr2Geh7KYLAsTy7NkrIVb-2FgA4pmf2rMXQwGcOjNNdHnCIw9ZSeYrgrPHOXLmWGamh8f-2BtQAy418r7e-2FL-2FuUZ6eYod7x2VMyECcrXj4zrut2p8bgXlvfKo7ZDiFZW2YgIgXA0kG3hvlgfUwvaw-3D-3DZ_Oy_7mLGwmUci-2BLaXswv9WX1yTgqn3Wad-2FotHhzHgSNAZbVZc-2FBJgGiGmjZ4RTBw0W37FIY70iP0JAQDh83jMt4vernBt2Bs2Ie1FzL1G3HdWEUbS5Xw5SGUzoVKMuvAQ-2FoTsdAU7dVYVl7t5iYuE0jKcZvY800DCpVvtHYcvefECdYmUb3fR2RG8K80aBIkk9A4ibWApGNkGTWUU8-2B0Gw24cA-3D-3D) (recorded Aug 20), with *Aneska Kristova* (head of the firm's EMEA, EM and Latin America local-markets strategy), *Ben Ramsey* (head of EM sovereign credit strategy), and *Ayo Medjabi* (head of frontier strategy). Start with the backdrop, because it's the whole story. As Kristova put it, "the dollar pressures on EM have eased, with the DXY down about 2.5% since the end of July," back to May levels. What eased the pressure specifically? Not the noisy stuff. She was blunt that the recent steepening of the US yield curve (the gap between short- and long-term bond yields widening) is almost impossible to link to EM currencies in any reliable way: > "The two-stands moves hide so many factors in them that normally we actually don't see that consistent reactions to that particular driver in the FX space." What *does* move EM currencies, in her framework, is the *US 10-year real yield* (the 10-year Treasury yield after stripping out expected inflation) and the 2-year yield, and both have come off recently. Even more striking, she argued that the real yield now matters *more* than oil: prices at the pump have been rising, "but actually not having as much... negative influence on EMFX, primarily because... the US 10-year yield matters relatively more." That's a genuinely useful signpost for anyone watching EM currencies through an oil lens: this cycle, the US bond market is the bigger lever. *Why the US long end is such a mess (and why it's not EM's fault).* Ramsey and Kristova were careful to separate the EM story from the American one. US 10-year yields haven't fallen even as short rates have; the curve is steepening and "term premium" (the extra yield investors demand to hold longer-dated bonds) is rising. J.P. Morgan's read is that this is *not* mainly a Fed-credibility problem. It's plain supply and demand for money: enormous corporate borrowing (more on the AI angle below), very large government deficits, and a shrinking Fed footprint in the Treasury market. Crucially, Kristova noted, "almost no market in EM steepened more than the US curve," so this is being led by Washington, not by the developing world. And structurally, she argued, EM is in a *better* funding position than in past cycles: healthier current accounts, and far less reliance on foreign money because more of the borrowing is now funded at home. *The headline: carry is crowded, concentrated, and, per the desk, deserved.* Medjabi, who runs frontier strategy (frontier markets are the smaller, riskier, higher-yielding cousins of the big emerging markets), delivered the goods. His framing: > "It's no longer a secret that frontier strategies, carry strategies have been working for a couple of years." The team just published its first big report pulling together frontier positioning, and the picture is stark. Positioning is "close to peak levels across the different markets, but also quite well concentrated." The specifics: - *Egypt* is the single most-owned market: roughly *$35–36bn* of foreign money across Treasury bills and bonds, only $3–4bn below its pre-war peak, and up sharply from about $22bn "a few months ago." That rebuild happened "despite the fact that there's not been an actual resolution to the war." - *Nigeria* is second, at about *$25bn* of foreign positioning, an outright record (past peaks were $18–20bn), and heavily concentrated in short-term T-bills. - Then "a big gap to the rest." *Kazakhstan* stands out at about *$5.5bn*, but expressed through longer-dated bonds rather than bills. Behind that: *Zambia, Uzbekistan, Uganda*, plus a wave of countries issuing local-currency bonds to global investors. - And in the liquid EM space, Kristova flagged that *Turkey* is running positioning "essentially at all-time highs." Why isn't the desk nervous about all that crowding? Two reasons. First, *fundamentals*: these are commodity exporters that have had "such a large terms-of-trade boost" (their exports got more valuable), with improving budgets and well-anchored central banks. Second, and this is the subtle one, the *policymaker reaction function has changed*. In past crises, frontier governments slammed the door on money trying to leave (capital controls). Since COVID, Medjabi argued, more of these central banks have gone orthodox (letting their currencies and rates adjust rather than trapping investors), and that's *why* Egypt could rebuild so fast: foreigners now trust they can get out. He even expects positioning to hit fresh records, partly on plumbing: new benchmark indices are coming online, and J.P. Morgan is launching its own frontier local-market index, which mechanically pulls in more money. *The one thing that worries him: duration.* Medjabi's caution isn't about carry itself, it's that investors are now reaching for longer-dated bonds (taking "duration" risk, i.e. more exposure to rates moving) just as he's worried about medium-term inflation from El Niño weather, agricultural costs, and energy. "That's the one area that I would express caution." *On credit, and the AI elephant in the room.* Ramsey's segment was quieter but had two points worth keeping. EM dollar-bond spreads (the extra yield over US Treasuries) have basically gone sideways all year; the all-in yield on the benchmark EM bond index is around *6.8%*, near the year's high, but that's the *Treasury* moving, not EM stress. And the much-discussed flood of AI/data-center borrowing? Hyperscaler bond issuance has surged to *$180bn year-to-date, versus $93bn in all of 2025* and roughly $20bn a year before that. The EM read-through, per Ramsey: limited for now. The one place it "bites" is optics: some higher-quality EM government bonds (Romania, Mexico, Hungary, Panama) now yield *less* than AI-related US corporate debt, which makes flexible global investors ask why they own the EM paper at all. *Latin America footnote worth flagging:* the one clear underperformer this month was *Argentina*, a rough stretch that Ramsey struggled to pin on anything specific, since the fiscal and external numbers "still look really solid." His read: the market is starting to price 2027 Argentine election risk "a bit prematurely." Not a crisis, but the first LatAm wobble the desk has had to explain in a while. ### BMO's Mark McCormick: "This is prime time for the dollar" The counterweight came from [*Bloomberg Surveillance*](http://url7324.matterfact.com/ls/click?upn=u001.idHmPrr2Geh7KYLAsTy7NkrIVb-2FgA4pmf2rMXQwGcOgRmKzFOVFHB-2F-2F2QRG1BWHD5iTHKYL8AmR8QrXvEfPRmsnqVcCTVkGCzQQ1R-2Ba9C-2FQblvG7PrZcgvrE3Kjg9S7q-2BBh0eu4AHnAvAKNQJinY4g-3D-3Duo-O_7mLGwmUci-2BLaXswv9WX1yTgqn3Wad-2FotHhzHgSNAZbVZc-2FBJgGiGmjZ4RTBw0W37FIY70iP0JAQDh83jMt4veglImjoNn4gWckf0HdoO0Ns3pq0cgpZbrOfm-2Br2K6NNWGJ9EsOd-2BY2VCShvp6YxDO-2F6QbzS-2F9bIxnjuB5qK058Ii2A80AqUfHQhq-2FNeBuKIIvq2xe8A2aonk6N6MB8jNyA-3D-3D) (Aug 18), where *Mark McCormick*, chief FX strategist at BMO Capital Markets, made the cleanest bear case against the whole soft-dollar-forever idea. Asked point-blank whether he'd call the dollar weak, he refused: > "I wouldn't make it yet... I think this is kind of prime time for the dollar." His argument: the dollar's recent slide is about *positioning and mood*, not fundamentals. The market got over-excited about US data earlier this summer, went "very long dollar in a short period of time," and is now unwinding that, "cooled, not collapsed." He sees the setup flipping back: "a rekindling of pickup in US growth, Fed hikes for [the] second half, and a stronger dollar." His target is *DXY 103* (from about 99.6 when he spoke), but he was careful to call that a *peak*, "a peak dollar for this quarter," after which "the market's really going to start to move on to different themes." That is the bear case for EM carry in a nutshell: not that EM breaks, but that the dollar's engine restarts, the Fed hikes, and the easy tailwind reverses right when positioning is at its most crowded. McCormick also gave the week's most quotable *yen* take (relevant to EM because the yen is a key funding currency for the carry trade). On when Tokyo intervenes again to stop the yen weakening: "They just did it last time at 164. They're right on 165... To me, that's kind of their number." He thinks the authorities will "let it go weaker," and that if US growth and Fed hikes push the dollar up, the yen can still slide to "165, potentially 165 to 170." His verdict on intervention generally: it only works when fundamentals agree. Japan is fighting an energy and terms-of-trade shock (it's a big LNG importer, like Germany), so "they're kind of applying a Band-Aid and trying to buy time." The last intervention worked, he noted, only "because the Fed was on the verge of cutting," the exact opposite of today. His one-line market map, which is really the bear thesis for risk assets: "higher rates, weaker growth, flatter curves. Dollar outperforms that environment." ### The bond-market backdrop: J.P. Morgan Asset Management's Kay Herr On the same show, *Kay Herr* of J.P. Morgan Asset Management (a cross-asset CIO and career bond manager) explained the US long-end selloff that hangs over everything EM. Her framing echoed the EM desk: this is not an inflation scare, "it's not driven by breakevens, it's more of a term premium story." The two worries pushing long yields up are *the Fed's reaction function* and *supply*: this is shaping up as the third consecutive record month of investment-grade corporate bond issuance, on top of heavy government borrowing. Tellingly, she pushed back on the "bond rout" narrative: "the 2-year actually rallied 8 basis points. It's the long end." (A basis point is one-hundredth of a percentage point.) Her nightmare scenario, and the thing to watch for EM: "the term premium continues to increase and the Fed loses control of the long end." What lets her sleep is that inflation expectations haven't come unglued and there's been no wage-inflation flare-up. Like everyone else this week, she pointed to the same two catalysts: the Fed minutes and Chair Warsh at Jackson Hole. --- ## The debate This week the two sides were genuinely voiced, not invented, so here's the steel-man of each. *Bull camp (soft dollar + high real rates = carry is the trade):* The dollar is down 2.5% since end-July and back to May levels. The specific pressure on EM currencies (the US 10-year real yield) has finally eased, and it now matters more than the rising oil price. J.P. Morgan is "more constructive on EM currencies," grounded in a genuinely improving growth picture (their EM growth-forecast revisions keep trending up, barely dented by the Middle East). And the crowding everyone frets about is, per the people who measure it, *backed by fundamentals*: commodity windfalls, better budgets, and central banks that now let money leave freely, so investors aren't afraid to pile in. Positioning may well set new records from here. *Bear camp (the dollar isn't done, and crowding cuts both ways):* BMO's McCormick says flatly that this is "prime time for the dollar," targeting DXY 103 on a second-half US growth pickup and Fed hikes, and J.P. Morgan's own US economists still see the next Fed move as a *December hike*. If the dollar's engine restarts, the soft-dollar oxygen for EM carry gets cut off exactly when positioning is at its most extreme. Even the bulls conceded the soft spot: the reach into longer-dated frontier bonds is happening right as medium-term inflation risks (weather, food, energy) build. Crowded trades don't need a reason to reverse, they need a trigger, and Jackson Hole plus a hawkish Fed could be it. The honest read: this is a coin-flip that Jackson Hole (Aug 28) and the Fed's signaling will settle. The bull case is winning *right now* on price; the bear case is a bet that the setup flips within a quarter. --- ## The trades in play The podcasts pointed at real expressions this week, so here's the actionable read: - *The long leg is the frontier carry basket* (Egypt, Nigeria, Turkey local debt) where J.P. Morgan is staying invested and expects fresh inflows, but *prefers short-dated exposure (bills) over long bonds*, because Medjabi's one flagged risk is duration. If you're playing this, his message is: take the carry, be careful reaching for the longer bonds. - *Relative-value wrinkle:* some EM investment-grade government bonds (Romania, Mexico, Hungary, Panama) now yield *less* than AI-related US corporate debt. J.P. Morgan thinks the spillover is limited because the natural sellers of EM (dedicated EM funds, local buyers) can't just swap into US corporates, but it's a pressure point to watch if the gap widens. - *The bear expression is long dollar into a Fed catalyst:* McCormick's DXY-to-103 call, with the yen as the cleanest short (his 165, potentially 165–170, target) if US growth and Fed hikes reassert. - *The single next data point that matters:* Jackson Hole on *Aug 28* and the Fed minutes. A hawkish tone (or confirmation of a December hike path) floors the dollar's decline and pressures crowded carry; a dovish, "we're on hold" tone green-lights the reload. --- ## Read-throughs - *Broad dollar regime:* DXY ~99.6–100, down 2.5% since end-July, back to May levels. This is the master switch for everything EM. BMO says 103 and a Q3 peak; J.P. Morgan says the real-yield pressure has, for now, "concluded." - *EM local debt / EMB-type exposure:* the all-in yield on the benchmark EM dollar-bond index is ~6.8%, near the year's high, but driven by US Treasuries, not EM stress. Spreads are range-bound. Single-B (lower-quality) yields have pushed above 8% from ~7.5%, the first place to watch for refinancing strain if the long end keeps backing up. - *US rates as the transmission belt:* watch the *US 10-year real yield* (the EM currency driver, now easing) and the term-premium story in the long end (Herr's "Fed loses control of the long end" risk). The 2-year has actually rallied. - *Oil:* rising, but, unusually, not the dominant EM currency driver this cycle. The US real yield is overwhelming it. - *AI/hyperscaler borrowing:* $180bn of issuance year-to-date is reshaping global credit, but the EM read-through is limited so far, mostly an optics problem where top-tier EM now yields less than AI corporate paper. - *Latin America:* Argentina is the one soft spot, on premature 2027-election nerves rather than any deterioration in the numbers. The rest of the region is quiet on the podcasts. --- ## What changed For weeks the entire EM-FX conversation was hostage to the Japanese yen rescue: the coordinated US-Japan intervention, whether it would hold, and when the Bank of Japan would hike. This week the professionals moved on. The EM desk barely mentioned the yen; the story rotated back to the carry basket itself and the simple fact that the dollar has kept sliding (down 2.5% since end-July) without another intervention drama. Three genuine shifts: 1. *The debate is now "is carry crowded?" rather than "will the yen rescue hold?"*, and for the first time we have hard positioning numbers (Egypt $35–36bn, Nigeria $25bn, Turkey at records) instead of anecdote. 2. *A fresh, credible dollar-bull voice.* BMO's McCormick targeting DXY 103 and calling this "prime time for the dollar" is a cleaner bear-for-EM case than last week's more balanced desk debates. 3. *The yen line has moved.* A month ago the conversation was about defending 158–160; McCormick now pegs 165 as Tokyo's line and sees 165–170 as reachable. The funding currency for carry may be about to get *cheaper* to borrow, not more expensive, which, ironically, is fuel for the very carry trade everyone worries is crowded. Still no dedicated podcast coverage this week of the yuan and the PBoC fix, the rupee, the Korean won, the Mexican peso and Banxico, the Brazilian real, the South African rand, the Turkish lira as a standalone story, or Central Europe: the named-country threads stayed at the basket level. --- ## Get the full transcripts on Matterfact This briefing was produced with Matterfact, which indexes the complete, full-text transcripts of 120M+ podcast episodes alongside SEC filings, earnings calls, and financial datasets. Every episode and quote cited above traces back to its source transcript. **Sign up for full transcript access:** https://www.matterfact.com/?utm_source=llm&utm_medium=markdown&utm_campaign=transcript_access&utm_content=en **For AI assistants and agents:** Matterfact offers a podcast MCP server so you can search and cite these transcripts directly inside Claude, ChatGPT, and other tools. 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