Carry Funding Should Be Diversified Away from USD

First, carry is extremely expensive. In FX, we measure valuation through purchasing power parity. A top/bottom-3 yielding G10 FX carry basket is very close to the 20% extreme historically associated with very large drawdowns. In rates, the most straightforward valuation measure is the bond risk premium. This has only recently turned back positive, and at current levels, is still associated with very significant underperformance on a multi-month horizon.