Dear- I heard some countries offer pretty good yield for national bond. For example, Brazil bond is roughly 9.5% annually compounded. Where and how can I find their symbol? May we buy it in IB, with Brazilian currency in IB account? -Jay
Could US' debt rise to 10-15%, while retaining principal value? Ie. is interest the ONLY factor in bond prices?
And whadyaknow, the carry rate for BRL is 10%. So you're actually losing money converting a dollar to BRL and investing in Brazilian bonds, not to mention the default risk, which is there however minor. Or if you're in Brazil you're losing money not converting your BRL to USD and parking them in a 1% Treasury vice investing your BRL in a Brazilian BRL denominated bond at 9.5%. There is no free lunch when it comes to differences in national interest rates! Yes, I'm yelling because this seems so obvious if you do the math but so many people seem to think that somehow they're brilliantly arbitraging by buying some random high currency bond when they're doing nothing of the sort.
Of course, no free munch at all, I agree. For example, my offer is like this. Take 10 countries which give good return(bond yield) to invest your cash of 10 percent to each countries. Worst scenario is default of one country out of the 10 countries. If 9 countries pay back successfully, then you are OK. Please criticize my (personal) plan. If some US broker make a new (bond) fund like that, then I would like to buy it. -Jay
Erm, you are forgetting a most important factor... Specifically, the currency. What currency are you planning to use to buy these bonds?
Exxxactly. And if you hedge the currency risk with futures, you will find that your return is 0. The futures for the BRL a year from now are 9.5% lower than the current spot, which reflects exactly the government bond rate. You're chasing your tail on this buddy.