Dude, Where's My Yield?

It’s understandable why some sovereign-debt investors fret about living in a world that's devoid of yield. If they live in Japan or Europe, they're increasingly being forced to pay for the privilege of owning government bonds.

But if investors turned their attention to the rest of the globe, there’s tons of yield to be had, or so it may seem at first blush.

Just look at India, where yields on 10-year government notes are a fat 7.4 percent, or Colombia, where rates on such debt are 8 percent. That's real yield compared with the ridiculous negative yields that are invading many developed nations.

So why wouldn't investors in some yield-starved nations, such as Japan and Switzerland, race to lend to these countries? Sure, these nations are riskier in many ways, but how likely is it that they're going to default within the next 10 years?

It seems logical for developed-market investors to simply buy the higher-yielding government bonds and enjoy their hefty interest payments for as long as possible.

There is a catch, of course, and it's a big one. Investors can't transfer their money out of a place like Japan or Europe and into one of these higher-yielding nations without converting their money into the local currency or entering into a currency-swap wager. At that point, they're either making a risky currency bet or else they're forced to enter into an expensive currency hedge that may render the bet uneconomical.