A Bond Maven Shops Abroad
Investors can make money on the sinking dollar by buying nondollar bonds. David Rolley, co-manager of the $100 million Loomis Sayles Global Bond Fund (LSGBX ) discussed this investment opportunity and others with Personal Finance Editor Susan Scherreik.
Where are the best opportunities?
Europe. Roughly one-third of the fund is invested in high-quality euro-denominated bonds.
What's the appeal?
European government bonds yield nearly half a percentage point more than U.S. Treasuries. More important, we think prices of these bonds will rise in coming months as the European Central Bank cuts interest rates to bolster the extremely weak economy.
How does the U.S. dollar fit in?
So far this year, the dollar's value has dropped 11% against the euro. In the next 12 to 15 months, the dollar could fall a further 10% to 15%.
Our ballooning trade deficit is weighing the dollar down. Also, with U.S. interest rates so low, U.S. bonds aren't likely to see further price gains.
What other bonds do you like?
U.S. corporate bonds issued in foreign currencies. We recently bought General Motors Acceptance Corp. debt in [British pounds] sterling. The yield is 6% because interest rates are fairly high in England. Here, you would be lucky to buy a similar GMAC bond yielding 3.5%.
Any other good values?
We like Canadian corporate bonds because Canada's economy is strong. Similarly, in the U.S., we like high-quality corporate bonds because we think they'll outperform U.S. Treasuries when the economy picks up.