The world currently faces a currency crisis as US dollars and British pounds, two of the largest currency ships in the world, sink.
The last thing to do when the ship is sinking is to stay totally on that ship, without a life raft.
Yesterday’s message suggested diversifying a bit into a currency that seems high risk…the Turkish lira.
But is it high risk?
Yesterday’s message looked at how General Electric bonds pay 17.15%.
We looked at how General Electric enjoys the highest rating (AAA) with both Moody’s and S&P. However in reality GE bonds are trading as an AA-rated company due to the financial crisis which has caused the credit spreads of all corporate bonds to widen.
The bank warns investors that they take on a higher credit risk by buying
General Electric issues instead of government backed bonds… but the GE bonds pay 1% to 1.5% higher yield.
Jyske two days ago introduced a GE bond denominated in Turkish Lira with a coupon of 16.75 %. This s a short term (safer) bond maturing in less than two years, 16 April 2010 The quoted price of 99.35 means that the yield to maturity is 17.15 %.
This is just one of a selection of bonds denominated in Turkish lira that yield 16% to 17%.
To gain this yield, one must take on a currency risk. Most people would assume that the Turkish lira falls regularly versus the US dollar.
This would be an incorrect assumption as you can see from this chart at finance.yahoo.com.
In the last two years the lira fell only from August through September 2007. Otherwise it has gained against the US dollar!
I invested lira bonds in my pension two years ago and have enjoy these high returns with very little forex loss.
Look at the difference in earnings. The GE bond that matures April 2010 in Lira pays 17.15%. Compare this to a Bank of America bond maturing in US Dollars in January 2101. This bond has a 4.25% coupon and sells for 101.33. This is a yield of 3.67%.
The yield difference is 13.48%. GE is a safer borrower than B of A. Your risk premium for betting on the lira is huge.
I am certainly happy I took this risk two years ago…wish I had taken more…but I would not because smart multi currency investing involves diversification. My portfolio also has Brazilian real bonds, Danish and Swedish kroner bonds, British pounds and many other currencies.
We’ll look more at diversification, and how Jyske Bank can help you diversify, in upcoming messages.
Learn why and how to know more about multi currency investing.
Now Jyske Bank has become one of the few global banks that has registered with the American SEC so American investors can more easily use the bank’s global services.
You can get more information on multi currency investments Jyske Bank from Thomas Fischer, Senior Vice President at email@example.com
Even better you can meet me and Thomas at our next International Investments and Business Course.