Global Fixed Income

Currency Hedging Can Boost Yields and Reduce Volatility

Kenneth A. Orchard, Portfolio Manager
Key Insights
  • Foreign currency bonds are often unattractive to U.S. investors because they offer very low yields or are perceived as carrying too much risk.
  • By hedging the currencies of some foreign bonds, higher yields are obtainable—in many cases higher than the yields from U.S. Treasuries.
  • Hedging the currency of emerging market bonds typically reduces the yield but can help to mitigate volatility.

With some foreign bonds offering very low/negative yields and others offering higher yields but also greater currency volatility risk, it is not surprising that many U.S. investors display “home bias” by allocating heavily to U.S. Treasuries.

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This material is provided for informational purposes only and is not intended to be investment advice or a recommendation to take any particular investment action.

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