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If you’re German and buying US treasuries, you’re exposed to foreign currency risk. If you want to hedge that risk, you’ll pay for the privilege so that it’s no
by xyzzyz 7y ago
If you’re German and buying US treasuries, you’re exposed to foreign currency risk. If you want to hedge that risk, you’ll pay for the privilege so that it’s no longer worth it. For the same reason, the German negative yield bonds are actually positive yield after swapping doing a currency swap to dollars.
- mruts 7y agoThis is true, but by taking USD exposure rather than Euro exposure, you are actually derisking and hedging out the massive currency exposure you already have. Namely the fact that you use Euros for everything in your life. So it would probably be a better idea to hedge some of that out unless you have some specific long view on Euros. Also you could argue that Euro debt isn’t sovereign debt since only the European Central Bank can make more of it. Consequently USD should be a less risky and more stable currency in the long-term.