Currency And Bond Investments
When you’re looking to buy a foreign bond, the yield or potential capital gains your bond can earn are just part of the equation.
The other vital part is what happens to the dollar and your bond’s foreign currency from the time you buy your foreign bond and its maturity date. Depending on the currency, it can either hurt your overall returns, or it can turbo-charge your returns.
| Choose a Strong Currency First, That Looks to Beat the Dollar |
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Therefore, the way I’d play foreign bonds is to FIRST get an opinion on the foreign currency and how you think it will perform vs. your home currency.
Then if you believe the foreign currency will trounce your home currency for the period of the investment, then look into their bonds. That way, if you’re right about the foreign currency’s direction vs. your home currency, you stand a much better chance of making a really nice return on your money (over and above the actual interest earned on the bond itself).
(Also, note that if you hold a bond until maturity, then you don’t have to worry about the bond’s price and you can just focus on the bond’s yield that it gives you over time.)
Your Bond Checklist: 3 Things Your Bonds Need
So the next question is, “How do you know what country could be good to invest in?”
When looking at a bond, you want the highest yield for the least amount of risk. Some of this you can gauge by S&P and Moody’s outlook in how they rate a specific country’s bonds. I’d suggest investing in “investment grade” bonds for your first bond investments.
Government bonds can be a great place to start, for instance. In this case, if you can ascertain whether the country is in good enough shape to make good on its bond payments, then you can ascertain the risk that you’re taking on.
Personally, I look for countries that have some of the highest GDP growth out there and have the least amount of debt proportionately. Here’s my checklist. I look for bonds from countries with…
- High growth possibilities
- Doesn’t have a mountain of debt
- Has a favorable rating from S&P or Moodys
By the way, this is why foreigners are questioning U.S. Treasuries. We have a mountain of debt and sluggish growth (in fact, negative growth at the moment)! So I can’t blame them for being concerned about our bonds after I just told you how I’d judge a country’s bonds.
By Chuck Butler - www.worldcurrencywatch.com
Tags: bond, bonds, capital gains, Currency, dollar, Foreign Currency, gdp, Gdp Growth, Government Bonds, interest, invest, Investing, investment, investments, money, risk, treasuriesPosted in
