I'm talking about local currency issues obv. So how do they hedge? Doesn't the negative carry ruin things?
It all depends on what you are looking for. Ultimately you are trading a credit risk (+ FX if you don't hedge). For whatever reason I may be looking for that specific credit risk (which may not be available in my base currency), or the spread may be more attractive than in my base currency even after hedging (this happens regularly) Edit: to answer your last question: usually by using forwards, although matching exact cashflows may be tricky, particularly if your looking to hedge FRNs) Hope this helps
so you make sure the negative carry implied by the forward doesn't eat your USD-measured yield from the bonds?
Yes, they do. Through hedges in a similarly moving currency against the USD. Say you invest in IDR government bonds which offer attractive yields, you can hedge through AUDUSD forwards to curb the movement of USD against IDR, as AUDUSD forwards is cheaper than USDIDR one. It is not a perfect hedge but both IDR and AUD are commodity-linked currencies.