US growth showing signs of resilience. Since the start of the month, US jobs data, retail sales, and ISM all point to exceptionally strong US economic growth amid higher energy prices and still-high long-term rates. Meanwhile BBVA Financial Conditions Index has remained sustainably near neutral territory since March. The US 10Y yield breaking 5% could thus be seen as a sign of exceptionally strong nominal GDP growth of nearly 8% (5% GDP growth suggested by the Atlanta Fed GDPNow and c.3% inflation). A robust labour market has made the Fed feel comfortable enough to restart its tightening cycle to reign in inflation. Looking back at history, we have seen allocation towards Carry and BBVA SMART strategies deliver the best returns when the US economy is in an expansion phase.

BBVA USPI seeing positioning unwinds. Our US Positioning Indicator (USPI) currently sits at 0.55x, down from its late-August peak of 0.76x. This unwind in US equity exposure follows the US 10Y yield breaking out of its range and climbing above 5%, its highest level in nearly two decades. This orderly de-risking shifts market positioning back towards neutral. Crucially, in the absence of a single significant catalyst, robust economic fundamentals continue to cushion equity markets against deeper rate-driven sell-offs. The current 0.5-0.75x range for our positioning indicator still suggests that carry can continue to perform in the absence of a deeper correction in equity markets.

Carry on! Strong economic fundamentals have led directly to carry strategies outperforming this year. In terms of absolute returns, BBVA FX LatAm carry has delivered the best returns this year with a Sharpe ratio of 2.5x over the past year, while BBVA equity volatility carry has delivered the best volatility-adjusted returns over the past year of 3.5x. Within the carry space, our preference remains for equity volatility carry (see QIS Risk Premia: Equity Volatility – 05 June 2026). Our BBVA QIS risk premia framework suggests BBVA equity volatility carry strategy as the QIS risk premia currently and the best among our offering of carry strategies.

Trade of the month: IR Policy Pulse. Escalating tensions in the Middle East and the Russia-Ukraine conflict have kept energy prices elevated, reinjecting cost-push pressures into supply chains. Additionally, severe weather events and agricultural disruptions are driving up food prices globally. At the same time, the ECB, Fed and BoJ have hiked interest rates in the same month for the first time on record. While the past six months do not mirror the extreme inflationary environment of 2022, there are enough similarities to warrant investors considering strategies that could prove to be an effective hedge for their portfolios. BBVA Policy Pulse is our answer, where investors can use short-term rates to benefit from central bank action to counter rising inflation expectations in the US, Europe and the UK. Currently, US rates markets are pricing in 75bp of further rate hikes by the Fed from now until the end of next year. If the rate-hiking cycle ends up being longer, as history suggests that it might, then our strategy could be useful in hedging portfolios.