With a currency hedge, investors may also enjoy the positive cost of carry, or the difference in one-month interest rates in the U.S. versus foreign countries, especially as U.S. rates are higher than those of major developed currencies, including the euro, yen, British pound and Swiss franc.
Consequently, investors who are interested in the international debt market but are wary of forex risks can look to currency-hedged bond ETF options, like the recently launched Deutsche X-trackers Barclays International Treasury Bond Hedged ETF (BATS: IGVT) and Deutsche X-trackers Barclays International Corporate Bond Hedged ETF (BATS: IFIX).
The two funds will enter into forward currency contracts designed to offset their exposure to foreign currencies by selling the applicable foreign currency forward at the one-month forward rate, according to the prospectus sheet.
IGVT will try to reflect the performance of the Barclays Global Aggregate Treasury ex USD Issuer Diversified Bond Index (USD Hedged), which is comprised of investment grade sovereign debt issued in developed and emerging markets denominated in the issuer’s own domestic currency.
IFIX will try to reflect the performance of the Barclays Global Aggregate Corporate Ex USD Bond Index (USD Hedged), which is comprised of investment grade corporate debt issued in developed and emerging markets in the industrial, utility and financial sectors.
For more information on the fixed-income market, visit our bond ETFs category.