Insights   •   Fixed Income

Global Fixed Income – Is it Time to Hedge?

Reduced volatility from greater diversification, along with lower hedging costs and an expensively valued US dollar underpin the argument for sterling- and euro-based clients with existing unhedged global bond exposures to consider switching to currency-hedged exposures. This approach should help to lock in the meaningful unrealised gains that accumulated from home currency depreciation over the last few years.

The investment landscape in 2020 has been a challenging one for European bond investors. Sovereign bond yields touched record lows as the unfolding COVID-19 pandemic dampened economic prospects and central banks cut interest rates and expanded asset purchases programs.

The case for euro and sterling investors to consider investments beyond their domestic markets for diversification benefits and better risk-adjusted returns is further bolstered by a significant decline in currency hedging costs.

With the final quarter of 2020 well underway, the yield outlook for sterling and euro investors looks particularly challenged; rates seem likely to remain close to, or below, zero for the foreseeable future with yield curves staying flat. For investors seeking extra yield, adopting a more global approach and moving into the Bloomberg Barclays Global Aggregate Bond Index (an index of global investment grade debt) seems attractive — this currently offers a higher yield (with lower duration) than their local government and aggregate bond indices.

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Hedging fixed income exposure with SPDR ETFs

Investors looking to hedge their fixed income investments can do so through SPDR ETFs. To learn more about these ETFs, and to view performance histories, please click on the links below.

Emerging Markets

SPDR® Bloomberg Barclays Emerging Markets Local Bond USD Base CCY Hdg to EUR UCITS ETF (Acc)
SPDR® ICE BofA 0-5 Year EM USD Government Bond EUR Hdg UCITS ETF (Acc)