World's Best Carry Trade Is Buying Mexican Peso: Rabobank

© Bloomberg. Silver coins are melted in order to be re-used again at the Mexican Mint, or Casa de Moneda, in San Luis Potosi, Mexico.

(Bloomberg) — Investors seeking to profit from steep interest rates in emerging markets would do best to buy Mexican pesos, according to Christian Lawrence, a strategist at Rabobank.

Projections for the next three months show the currency generating an annualized return of about 8 percent for investors who buy the peso in a so-called carry trade, according to Lawrence, whose bank is among the most bearish forecasters for the currency. While that’s slightly lower than volatility-adjusted potential returns on Turkey’s lira or India’s rupee, Lawrence says the peso’s liquidity makes it a much more attractive bet.

“When volatility spikes, everyone tends to run for the exits at once,” Lawrence said in an interview from New York. “Having a liquid currency is certainly very beneficial when you need to get out.”

The peso already has been one of the best volatility-adjusted carry bets this year, placing second behind the Malaysian ringgit as investors benefited from both appreciation and Mexico’s 7.5 percent benchmark interest rate, which compares with 1.75 percent in the U.S.

Rabobank predicts the peso will depreciate to 20.5 pesos per dollar in the second quarter and end the year at 19.8, compared with consensus forecasts of 19 in the quarter and 18.6 at year-end. The peso rose for a third day today, gaining 0.02 percent to 18.09 as of 10:24 a.m. in New York.

(Updates with Rabobank background in second, last paragraphs.)

Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.