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Sky-High Hedging Costs Are Fueling a ‘Turbo Bid’ for Dollars

  • Hedged Treasury yields are negative for Europe, Japan buyers
  • Decision not to protect against FX swings aids dollar: CIBC
A pressman aerates a stack of 2017 50 subject uncut sheet of $1 dollar notes at the U.S. Bureau of Engraving and Printing in Washington, D.C.
Photographer: Andrew Harrer/Bloomberg
Updated on

Yield-starved investors outside the U.S. are abandoning their currency hedges on American assets, and that’s good news for dollar bulls.

After factoring in the price of a 3-month forward contract, the yield on benchmark 10-year Treasuries falls to about negative 0.6 percent for euro-based investors. It’s the same story for Japanese bond buyers: Benchmark U.S. debt yields around negative 0.4 percent. That compares with 2.53 percent for those purchasing the note without paying up for protection against currency swings.