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Shopping the Globe for Higher Yields:

Posted by Randy

/ June 15, 2011 / Leave a comment

Many global government and corporate bonds have higher yields, evidence a growing demand, and are denominated in what appears to be a strengthening currency relative to that of the United States. Below is Durig Capital’s quick rundown of our more commonly quoted international bonds:

Brazil

Brazil’s ten year government bond is currently yielding 8.5%. It’s central bank raised key interest rates for a fourth straight time as it seeks to rein in persistent inflation, while continued global slowdown might help cool inflation concerns. The Bank of America(NYSE: BAC)’s Brazilian real bond maturing 11-19-2014 currently has a 9.30% yield. Compared to Bank of America’s U.S. offering (a two month shorter duration) yielding 2.46%, the B of A Brazilian real bond adds a whopping 6.84% spread for tacking on the currency risk.

Turkey

Turkey’s ten year government bond is currently yielding 8.87%. There’s concern that the fast-growing economy is overheating, as Turkey re-elects its open market based leaders. In this environment, RaboBank 2015 bonds yield over 8%, which seems very high for an AAA rated bank. In comparison, it’s longer 2016 US Dollar denominated bonds yield a mere 2.21%. That’s nearly a 6% increase in yield over a longer maturity, for the addition of a currency risk.

Australia

Australia’s ten year government bond is currently yielding 5.18%. Worth noting is the Australian government’s rating at #1 in the Stanford Based Sovereign Fiscal Responsibility Index (SFRI.)

Mexico

Mexico’s ten year government bond is currently yielding 7.01%. Evidence of a US slow down is a concern for Mexican debt because about 80 percent of Mexico’s exports are to the United States. Their GDP grew 4.6 percent (yoy) in the first quarter, slightly less than the 5 percent median forecast, but still quite healthy. GE Capital(NYSE: GE)’s Mexican peso denominated Oct. 2015 AA rated bond is trading at about an 8.75% rate. The peso currency risk here appears to be priced near a 6% premium above a similar length US Dollar denominated GE Capital bond, which is now yielding about 2.785%. In comparison, this GE Capital Mexico/US yield spread appears about 2.5% greater than the GE Capital Australian/US yield spread.

Hungary

Hungary’s ten year government bond is currently yielding 7.04%. Economists have just upwardly revised Hungary’s GDP 2.4% for the first Quarter, as the recently re-elected government continues to welcome market based reforms.

Greece

The yield for Greece’s government bond (now CCC, “junk” rated) is inverted, with the ten year gyrating up at 17.726%. Standard & Poor’s has forecast that the chance of a Greek default is likely, a risk reflected perhaps a bit more plainly in the two year soaring to over 28%.

United States

The United States ten year government bond is currently yielding 2.98%. The International Monetary Fund (IMF) Gross Debt-to-GDP 2016 projection, which includes all state and local government debt, predicts Greece’s Debt-to-GDP ratio will be 145.5%, compared with a projected 111.9% for the U.S.

Allotments

To accommodate the desire of retail investors to participate in many foreign government and corporate bonds at institutional yields, Durig Capital has overcome the minimum size purchasing barrier by combining many small retail bond buyers into a single purchase. In previous syndicates we have been able to facilitate smaller $5,000 and $10,000 US Dollar purchases, and anticipate being able to continue providing similar advisory services for our clients in most, if not all, of the countries mentioned above. To learn more, please view our website at http://investment-income.net/.

Disclosure We currently have clients in Brazilian Govt. & Corp. bonds, Turkey Corporate bonds, Australian Govt. and Corp. bonds, US Govt. and Corp. bonds, and are placing Hungarian government bonds soon.

To know more about this Global bond call our fixed income specialist at 971-327-8847