A good measure of emerging market carry risk is the JP Morgan EMBI+ bond market index. When it is compared against a long-term moving average, it provides a good measure of price declines and reduction of momentum in these bond markets. The downturn in these markets has occurred in tandem with the increase in credit spreads in developed countries. While we expected that global credit spreads would increase around the world, the fact that it has fallen below its long-term trend is meaningful. The last time this happened was a year ago at the same time as the hiccup in carry. A closer inspection of the index will show that it has a strong co-movement with specific carry declines. I would not use the word correlation because there are a limited set of cases, but conditionally reducing exposure in emerging market carry trades when this index declines is a easy risk management tool.
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