With the U.S. dollar strengthening against a basket of foreign currencies, BlackRock’s iShares has launched a currency hedged speculative grade debt exchange traded fund for international fixed-income investors who want attractive yields but are wary of currency risks.
According to a press release, BlackRock has introduced the iShares Currency Hedged Global ex USD High Yield Bond ETF (NYSEArca: HHYX), the first iShares currency hedged fixed income ETF.
HHYX will try to reflect the performance of the Markit iBoxx Global Developed ex-US High Yield (USD Hedged) Index. Specifically, the new ETF will hold the unhedged iShares Global ex USD High Yield Corporate Bond ETF (NYSEArca: HYXU) and implement foreign currency forwards, similar to other currency-hedged iShares offerings, to provide exposure to international high-yield bonds while mitigating the negative effects of depreciating foreign currencies or a strengthening dollar.
“We have seen significant U.S. dollar strength driven by global central bank policy divergence, and this could continue to impact U.S. dollar returns on international investments,” Matthew Tucker, Head of iShares Fixed Income Investment Strategy at BlackRock, said in the press release. “Given this backdrop, we are pleased to now be able to provide U.S. investors with the flexibility to hedge some or all of the currency exposure of an international high yield bond investment with our iShares fixed income ETF suite.”
The diverging policy outlook between the Federal Reserve and foreign central banks are driving gains in the USD. In the U.S., the positive data on consumer spending has encouraged bets on an interest rate hike as soon as September, which would strengthen the dollar.
Meanwhile, foreign central banks are engaging in loose monetary policies and even quantitative easing to bolster their economies, which have driven down yields and weakened the local currencies against the greenback. Additionally, the lower interest rates in the foreign countries may support high-yield assets as local investors search out attractive avenues for yields, similar to what happened in the U.S. after the Fed cut rates.