Tags: michael | carr | Income | yield | Foreign | Bonds | treasuries

Searching for Rewards in Foreign Bonds

By    |   Wednesday, 18 May 2011 08:46 AM

Income investors often seem to think that U.S. Treasury yields aren’t offering enough potential rewards compared to the risks.

The 10-year note yields about 3.2 percent, with maturities under three years all yielding less than one percent. Risks include inflation.

Official inflation rates show that prices rose by 2.7 percent for the 12 months through March.

Unofficial measures of inflation indicate that prices are likely rising at a much faster rate, perhaps as much as 10 percent a year, according to analysts at the Shadow Government Statistics website.

Looking overseas, investors may be able to find better yields.

Short-term rates in Australia are nearly 5 percent, and those rates top 12 percent in Brazil. Long-term rates aren't much higher than short rates in many countries, largely because investors are more confident in long-term growth than short-term economic trends.

These investments would require a U.S.-based investor to buy foreign currency.

While the dollar rallied higher last week, the long-term trend here has been unrelentingly down.

The dollar has fallen more than 50 percent in the past 25 years. A bull market in the early 1990s was the only countertrend move, and with the Federal Reserve continuing to follow inflationary, weak dollar policies, the downtrend isn’t likely to end soon.

A declining dollar enhances returns for overseas income investors.

Coupled with high yields, the potential gains are well worth the risks.

The average volatility in the dollar over the past few years has been about the same as that seen in the stock market. Investors can even use foreign-currency certificates of deposit, available through some U.S. banks, to boost income.

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MichaelCarr
Income investors often seem to think that U.S. Treasury yields aren t offering enough potential rewards compared to the risks. The 10-year note yields about 3.2 percent, with maturities under three years all yielding less than one percent. Risks include inflation....
michael,carr,Income,yield,Foreign,Bonds,treasuries,treasurys,risk
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2011-46-18
Wednesday, 18 May 2011 08:46 AM
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