Investment returns soar to multi-decade highs as arbitrage trading thrives on Wall Street

Jinse Finance reported that on July 22, as various assets reached unbelievably low volatility, investors flocked to arbitrage trading, making this one of the longest-lasting foreign exchange bets and bringing its most dazzling performance in decades. This strategy, which involves borrowing low-yielding currencies to invest in higher-yielding ones, has proven itself a winner for 2026, as the global economy has shown unexpected resilience despite the oil shock caused by the Iran war. This environment has suppressed market volatility and whet the risk appetite of traders seeking high yields in emerging markets. A popular approach recently recommended by strategists at banks such as Citi is to borrow euros to buy a basket of currencies including the Brazilian real, Colombian peso, and Turkish lira. Data shows that as of last week, this strategy is up about 18% year-to-date, marking the largest annual increase since 2005. Arbitrage has clearly been the strongest strategy for FX traders so far this year, easily outperforming other widely followed approaches such as momentum or value. Citi, Goldman Sachs, and JPMorgan have all discussed it in their research reports, while investors such as Nuveen and Vontobel believe it still has capacity for further gains.