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Jim,
The (fwd) yield implied by the Sep 3yr Bond Future is around 5.29% and the
(fwd) yield from the 10yr bond future is 5.51%. Yields that are very close
to those in the US.
"Cash-and-carry" trades (such as borrowing yen at 0.75% and investing in the
US at 5.7% can only work if you do not cover your implied fwd currency
position - otherwise you would have risk free cash!! You can only take
advantage of the interest differential by not (or maybe partially) hedging
the currency exposure.
The currency fwds market already takes into account the interest rate diffs,
hence it is more "expensive" to buy yen foward than it is to sell it spot.
Hope this helps.
E.
Jim Hamer wrote:
> Does anyone know the current rate of return on a 3 - 5 year Aussie note
> or bond? For some reason (looking at a futures quote on a 12% bond), I
> believe it to be above 12%. Is this accurate?
>
> Which brings me to my next question ... How effectively can any of these
> interest rate differentials (between countries) be taken advantage of?
> If I can obtain US capital at 7%, can I make money on an Aussie bond
> paying 12% by the time I figure my costs of hedging the currency risk?
> (assuming I do not want to hedge the interest rate risk at this time).
>
> Any guidance would be much appreciated.
>
> -Jim Hamer
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