Brazil logs world's worst carry trade in 2015

Investors who bet on Brazil’s local bonds this year were saddled with the biggest losses among major economies. The outlook for 2016 isn’t much better.

Borrowing dollars at the end of 2014 and buying reais, a practice known as the carry trade, left investors with losses of 22% as Brazil’s currency posted the secondbiggest slump in emerging markets amid political turmoil, the country’s worst recession in 25 years and two credit-rating cuts to junk. The loss was almost twice that for traders who bought Mexico’s peso and four times that of the Korean won. Investors got burned after being lured to Brazil by interest rates near 15%, the highest among major economies, which offered an alternative to benchmarks of less than 1% from the US to Europe and Japan.

While borrowing costs in Brazil are forecast to climb even higher in 2016, analysts predict the real will post the biggest losses.