Mexican institutional investors have tapped into a winning formula by pouring billions of dollars into currency-hedged short duration US Treasury ETFs, more than doubling their potential return owing to positive carry.
According to data from TrackInsight, investors have allocated almost $5.4bn to five Mexican peso-hedged share classes so far in 2024, as at 30 August.
Year-to-date inflows:
While most investors’ eyes have been fixed on the unwinding Japanese yen carry trade, Mexican institutions have been cashing in on the effect of hedging their short-dated US Treasury exposure to their home currency.
In fact, while the US dollar unhedged iShares $ Treasury Bond 0-1yr UCITS ETF (IB01) returned 3.3% between the turn of the year and 19 August, IB1MXX booked 7.2% gains over the same period.
Despite the Banco de Mexico cutting its reference rate by 0.25% last month, its policy rate still remains at 10.25%, with expectations this will remain…
