NEW YORK/LONDON- A 10 percent decline in the value of the US dollar since March has boosted returns for foreign investors in the world’s largest government bond market at a time when US Treasury yields are near record lows.
German and Japanese buyers of US government debt can pocket a few basis points in yield after hedging their foreign exchange exposure back to their home currencies, despite a 140 basis-point drop in 10-year Treasury yields so far this year.
For Japanese investors, buying US 10-year debt and hedging back to yen using three-month currency forwards would net a total yield of 10 basis points, Neuberger Berman data showed. It was -74 basis points a year ago, and negative for nearly three years before that, due to higher US interest rates.
The situation is roughly similar for a German investor. Buying US 10-year Treasuries and hedging back to euros showed a yield of -20 basis points, up from nearly -100 basis points a year earlier.
Going out the curve helps, though, with a positive yield of 48 basis points if one buys US 30-year bonds and hedges back to euros, compared with -43 basis points last year, according to Refinitiv data.
“There is an incentive to hedge more in US fixed income because the dollar is weak,” said Ugo Lancioni, head of global currencies at Neuberger Berman, which oversees $357 billion in assets.