Multi Currency Bonds

by | Sep 30, 2008 | Multi Currency Investing

The international financial crisis is creating bank failures globally. Now even Iceland, a AAA borrower has been hit. Iceland’s central bank provided government intervention, for Glitner, Iceland’s third biggest bank as it was about to fail within weeks. Iceland purchased a 75 percent stake for 600 million euros ($878 million).

Where is it safe to invest when governments globally are bailing out their banks to such an extent that their currencies lose their purchasing power?

The stock market is not the place to rush into now. Asian stock markets tumbled and yesterday the US stock market had its worse drop in 20 years.

Yet cash is not the answer either. Even money market funds have been freezing withdrawals.

Where can one avoid risk?

The answer is “every type of investment has risk…especially now”. Even holding cash has risk…because of the inflation that is bound to rise

Emerging bonds are one asset place where investors may still be properly paid for taking risk.

Bonds pay more than bank accounts because they are perceived to be less safe. Stocks pay more than bonds because they are perceived even riskier. Emerging market stocks pay more than major market stocks. Emerging market bonds pay more than major markets bonds.
Over the long run, bonds issued in countries and currencies perceived to be stable pay 5% to 7%…if they are issued in their own currencies.

To attain higher growth than 7% to 10% investors must either increase risk, trust luck or spot distortions.

This is good because the market is almost always wrong. Most investors always trying to avoid risk. Most investors dump their wealth into investments that are perceived to be safe. This creates excessive demand and lowers value and actually makes the perception wrong.

Knowing this helps wise investors spot trends created by distortions.

For example, right now short term bonds denominated in Euro issued by major market governments pay about 4.25%. One can increase yield by about 50% by buying emerging government bonds. Here are yields on some short term bonds denominated in euro.

Country Maturity Yield

South Africa 2013 6.22%
Philippines 2010 6.19%
Romania 2010 5.16%
Brazil 2012 6.03%
Colombia 2011 6.15%

It is not likely that any of these governments will default on their bonds in this short term…so at a time when equities are very volatile this could be a good place to get out of the US dollar, park cash in euro and still make a bit extra. The average yield on that portfolio is 5.93%

Ditto is true for emerging dollar bonds.

Country Maturity Yield

South Africa 2012 5.21%
Indonesia 2014 6.42%
Russia 2010 5.38%
Colombia 2011 6.15%

Again the chance of default is minimal yet in this case you nearly double your yield. A US treasury bond due in 2013 pays only 3.1%. The average yield in this portfolio is 5.79%.

If you held all eight bonds, four dollars and four euro, your yield is 5.83% and you have the safety of seven governments.

For those who ant even more currency diversification, your next lesson looks at how to get added currency spread and boost yield even more.

Until then, good global investing.


This is the last day to decide you can jump in your car r on a lace and join me and Thomas Fischer of Jyske Global Asset Management to review economic events and review my entire portfolio and all our thinking this Friday Saturday and Sunday October 3-5 in North Carolina at our International Investing and Business Course.

The course was fully booked but we had so many late applications that we have moved to a larger meeting room and therefore still have space.

Join me with Thomas Fischer of Global Asset Management, who was a currency trader for years to review our multi currency portfolio thinking for the year ahead.

To help our Multi Currency subscribers meet him and learn direct how Jyske can help, we are are dropping the price of your subscription ($249) from the course fee. The normal course fee is $749 for one or $999 for two. The fee for all Multi Currency Portfolio Course subscribe

This will not be all work-no play. We selected this weekend as the most likely to be beautiful with the autumnal leaf change. The colors are glorious.


Here delegates at a previous course chat during a coffee break.


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Please send me any other questions. I’ll give the questions priority if you add BL in the subject line. I cannot give you direct investment advice individually but can answer questions (without disclosing your identity) in these lessons.

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