Currency hedging makes Europe, Japan government bonds better bet than U.S.: Bloomberg

|By:, SA News Editor

Even though government bond yields in Europe and Japan are lower than those in the U.S., hedging for currency can make them more profitable than U.S. Treasuries, Bloomberg reports.

For example, they can earn about 3.8% a year from very low yielding 10-year German bunds--more than half a percentage point more than Treasuries.

Jim Caron, a fund manager at Morgan Stanley Investment Management, uses the strategy to buy euro bonds and pointed to Spain, where he can get effective yields of almost 5% on 10-year notes.

Sachin Gupta at Pimco says the interest-rate spread between U.S. and other developed countries will eventually disappear.

“Other countries are still lagging behind in terms of economic strength and interest rate hikes,” he said. “So this differential is likely to become more attractive over the next year or two before it goes the other way.”

ETFs: FXE, EUO, BNDX, GIM, ERO, BWX, DRR, ULE, EUFX, IGOV, URR, FIXD, SGQI, DIAL, DEUR, UEUR

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