Core Insights - Analysts from Mizuho and Goldman Sachs indicate that reduced currency volatility supports new opportunities for arbitrage trading in emerging markets [1][3] - Emerging market currency volatility has decreased by approximately 1.3 percentage points this quarter, surpassing similar indicators for G7 currencies [1] - The ratio between these two indices has dropped to its lowest level since 2013, suggesting a potential continuation of this trend due to stable dollar fluctuations [1] Group 1 - The decline in foreign exchange volatility is timely, as the stability of the dollar has led to decreased returns on dollar-denominated emerging market arbitrage trades [1] - Central bank interventions have played a role in controlling market volatility, which is crucial for arbitrage trading that is sensitive to short-term currency fluctuations [1] - Mizuho's chief trading strategist, Shoki Omori, notes that lower foreign exchange volatility enhances the risk-reward profile for emerging market arbitrage trading [1] Group 2 - An analysis of eight emerging market arbitrage trades funded in dollars shows a decline in performance in Q3, with a return rate of approximately 1.4%, compared to over 4% in the first two quarters of the year [3] - High-yield emerging market currencies remain attractive, with implied yields for three-month forward contracts in Mexico, Brazil, and Colombia at 7% or higher [3] - Goldman Sachs strategists highlight that the general decline in asset volatility pricing is favorable for the performance of emerging market spreads [3]

Core Viewpoint - The announcement of tariffs is seen as a negative signal for emerging market arbitrage trades, particularly affecting currencies in Colombia, Brazil, and Chile, which have all depreciated by over 1.2% [1] Group 1 - Mark McCormick, the head of foreign exchange strategy at TD Securities, indicates that the tariff announcement is not favorable for overbought emerging market arbitrage trades [1] - Currencies in Colombia, Brazil, and Chile have experienced a decline of more than 1.2% following the tariff news [1] Group 2 - Brad Bechtel, global head of foreign exchange at Jefferies, suggests that the current situation remains uncertain and that Trump's letters may be aimed at facilitating a new round of negotiations [1] - Bechtel anticipates further announcements related to tariffs in the coming weeks [1]