Every afternoon I go to Bloomberg’s page on market news for Australia/New Zealand to see what’s new. Every day I read one article about the New Zealand dollar and one about the Aussie. The articles either say that those currencies will go up vs. the greenback because the yield differential will hold or the articles will say those currencies will go down because the yield differential will not hold. It’s one or the other every day.
Occasionally I do learn something new which is why I read these articles.
One other recurring news item in these stories is bond issues that are denominated in NZ dollars but sold to investors that live in countries with lower yields. The concept of pricing bonds in one currency and selling them in other countries is not new but it is also not usually available to retail investors either.
Lately it seems as though I have read about a lot of bond issues denominated in NZ dollars. My comment is anecdotal I do not have data to refer to. NZ has some of the highest rates in the world. It makes sense that this type of demand exists. It is possible that as more bonds get issued, a floor of support will be created for the kiwi. Many strategists expect the kiwi to fall this year due to its current account deficit and other issues. While this is plausible, it has never been clear to me that this has to happen. Buying demand from a few billion dollars worth of bonds every so often could be enough to keep the kiwi from falling.
If this holds water for the kiwi, it should hold water for other high yielding (but not emerging market) currencies like the Icelandic krona. In fact the world bank issued ISK3 billion ($50 million US) of two year paper last November that yields 8%. The deal was lead by Toronto Dominion. According to the press release, Iceland is an AAA credit. I have seen conflicting information about the credit rating.
I was not able to find other ISK denominated bond issues but where there was one there will be others. Again this stands to support the krona to some extent. As more bonds get issued, it will create demand for the currency.
These types of simple supply and demand themes guarantee nothing but they help.
Wikinvest Wire
3 comments:
roger,
love your blog. i was wondering if you are aware of any cefs that buy high quality non dollar denominated bonds. i looked thru the list in barrons of us based world income funds. this seemed a reasonable place to search. however, it seems that these funds are denominated in $ and are loaded with long dated emerging market issues, us high yield, etc. i would prefer to have exposure to a portfolio of shorter dated investment grade bonds and give up some yield to get greater relative "safety of principal". my real objective is to get a yielding exposure to the non dollar markets with diversification around the globe. perhaps you are aware of a fund that trades in a different market or know of some other product that might fit this type of need? thanks again for your enjoyable blog. rtm
I may not be entirely following the question.
I own FAX for some clients. It owns foreign bonds and the maturity for the top ten (about 30% of the fund)is all fairly short dated.
Is this the type of fund you are looking for? If so, I'm surprised they are that hard to find.
well i must have missed that one in my search. i looked thru about 45 funds and found lots of brazil, hi yld, ust etc... i will look at this one. thx
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