Emerging Currency Bonds

by | Oct 3, 2008 | Multi Currency Investing

Our last three lessons have looked at three emerging bond portfolios. This lesson contains an interesting fact about the currency values.

The first was a portfolio of euro denominated bonds backed by five governments that pays and average yield of 5.95%

Short term bonds denominated in Euro issued by major market governments pay about 4.25%.  This means that this portfolio increases yield by about 50% by buying emerging government bonds. Here are yields on some short term bonds denominated in euro.

Borrower             Maturity            Yield

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

The next lesson reviewed a portfolio of dollar denominated emerging bonds.

Country                 Maturity           Yield

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

The average yield in this portfolio is 5.79%. Again the chance of default is minimal, The portfolio is back by four governments. Yet in this case you earn nearly double the yield of a US treasury bond due in 2013 which pays only 3.1%.

The most recent lesson showed a portfolio that more than tripled the yield over dollar treasury bonds because it added a currency risk. This portfolio is denominated in eight emerging currencies.

Borrower                   Currency             Maturity          Yield

Eur Inv Bnk                  ZAR Rand               2009             11.51%
Hungary                      HUF Florin              2009               8.49%
RABOBANK                   RON Leu                2010             10.48%
Gazprom                      RUB Ruble              2010               7.00%
Eur Inv Bnk                   TRY Lira                 2010             17.25%
Brazil                            BRL Cruzero           2016             11.13%
Egypt                            EGP Pound             2012             10.81%
Mexico                          MXN Peso              2009               8.24%

This portfolio is backed by four government and three top quality borrowers. The yield is 10.61% and is globally diversified. Plus this is diversified into eight currencies seven of which statistically are likely to appreciate versus the US dollar.

The most recent five years are statistically vital in viewing currency parities. Seven of these eight currencies in this portfolio have appreciated versus the dollar over the past five years!

The yahoo.com currency charts as of October 1, 2008 show how these currencies have appreciated versus the greenback.

Five years ago it took nearly three Brazilian reals to buy one US dollar. Now it takes less than two.


Five years ago it took nearly 6.2 Egyptian pounds to buy one US dollar.Now it barely takes about 5.5.


Five years ago it took nearly 31 Russian roubles to buy one US dollar. Now it barely takes about 170.


Five years ago it took nearly 220 Hungarian forint to buy one US dollar. Now it barely takes about 170.


In 2005 when Turkey introduced the TRY it took nearly 1.35 Turkish TRY to buy one US dollar. Now it barely takes about 1.25.


In 2005 when Romania introduced the RON it took almost 3.00 Ron to buy one US dollar. Now it barely takes about 2.5.


Five years ago it took over 11 Mexican peso to buy one US dollar. Now it takes less than 11.


Only the South African rand has dropped versus the buck dropping from just der seve rand t eight rand per dollar.


There you have it. Statistical facts graphically presented. History suggests that the currencies in this emerging bond portfolio will appreciate versus the US dollar.

Here is the approximate currency history again.

Currency Per Dollar Per Dollar 5 years ago            Now

Brazil real                                                                3                        2

Hungary forint                                                       220                    170

Russian ruble                                                           31                      25

Egyptian pound                                                        6.2                     5.5

Romanian Leu                                                           3                        2.5

South African Rand                                                   7                         8

Mexican peso                                                           11+                    11-

This creates potential for observant multi currency investors. The market assumes that the emerging currencies are weaker than the US dollar. The market assumes that the governments issuing these bonds have less ability to pay back the loan.  Thus multi currency investors receive a risk premium, in this case about 7% extra yield, to take the currency risk.

The reality is that these emerging market currencies have been safer and with the huge bailouts and enormous debt taken by the US government, the question of credit reliability may be skewed as well.


Merri and I love our lives in North Carolina’s mountains but autumn’s gold is here

multi-currency-leaf change

Instead of sitting in the cold and gray we move to Ecuador’s Pacific coast and Cotacachi, enjoying weather and views like this.


Join us in Ecuador and enjoy the festivals.


Our Oct 14-18 Ecuador Import Export Course has two spaces left.

Enjoy the colors…


and the grace of the people.


Learn this November more about Ecuador and emerging bonds. Join Merri, me, Steve Marchant, Kjetil Haugan and Peter Conradsen of Jyske Global Asset Management in Cotacachi Ecuador. We’ll review economic conditions, Ecuador real estate, my entire portfolio and investing and business ideas for the months ahead.

Nov 7-9 2008 International Investing and Business Made EZ Ecuador

See the wonderful balconies in the Primavera condos at for sale at $46,000 in Cotacachi.



multi-currency-Ecuador-condo office

Nov 10-11 Imbabura Real Estate tour

Then travel to the coast. Enjoy the Vistazul fresh seafood caught in front of the hotel by these fishermen on Ecuador’s Pacific.

San Clemente Fishermen

November 12-15, 2008 Ecuador Coastal Real Estate Tour; Quito Real Estate Tour

See discounts for two or more of these courses and tours