Buy high yield Emerging Market country bond and hedge back to USD?? Is it possible?

[troubled soul]

In today crazy high Market. It is better to buy fixed income rather than Overvalued stock.
I have Idea. Just buy any high yield Emerging Market country bond and Hedge back using USD.

Like Brazil Government Bond yield 11.0200%. If I buy one and Hedge back to USD. By doing this you get 11.0200% minus whatever the hedging fee/commission .Keep in mind that you get this Return on USD. Is it possible? Or Am I missing something?.
How to do this?
Is any bank or financial Institute provide this type of service?
or Even Is it good Idea???

@Martin Everson

As A bond investor do you try this type of setup?
Can you put some light on this Idea? Possibility ? which Banks???

Thanks

 

[JackAlabama]

I am not a bond investor,︂ just to say.

You buy a real / usd hedge and ideally some default protection.︃
Also as nominal rates set to rise, they will have an impact on long duration︄ bonds.
Even tho no real tightening will take place due to high inflation, but the︅ interest rates rise somewhat.

You can also buy stocks in these same markets, and those︆ are now very cheap compared to the high valuation tech stocks. Imo a better allocation︇ than into debt instruments.

 

[Silvio]

Hedging costs will eat away a big portion of the yield (or all of it),‌ usually these high yielding bonds are high yielding also because their currency has been falling‍ against the USD for a long time.
There is a reason that high yield bonds⁠ are also known as "junk" bonds. Yields are high for a reason and it's the⁤ risk.

If you insist on doing this, the easiest solution is to find an ETF⁣ you like that is already hedged to USD:
https://etfdb.com/etfdb-category/high-yield-bonds/
Also I'm far from a bond⁢ pro but from what I understand the yield is only the yield if you hold︀ the bond until fruition.

If you don't, you are also exposed to bond prices︁ falling when you try to sell, which has been the case for a while now.︂ Every time you read in the news "Bond yields rising" this means that the price︃ of these bonds is falling.

Bottom line just buy some diversified total market ETF and︄ don't do extremely risky things and risk total loss of capital. Don't forget that Brazil︅ has already defaulted on its debts 10 times.

 

[troubled soul]

Thanks for sharing. I do not know that.

 

[Martin Everson]

It is but hedging would be expensive. Get a quote and you will see what I⁠ mean. Also what are you hedging the interest payments or principle return? You would need⁤ to hedge both. And long dated hedges are uneconomical and so is short term hedging(bi-annually)⁣ and rolling over the hedge.

Any private bank︀ can but it would be suicide to do this.

Never ever. Last month I︂ liquidated my entire bond portfolio.

If you want to speculate on junk bonds︄ (High yield) then invest via a very diversified portfolio of HY Bonds. There are good︅ funds paying dividends monthly and contain over 1000 different bonds across multiple jurisdictions. This lowers︆ the chance of any single bond defaulting leading to huge loses. Like wise it reduces︇ political risk.

Inflation in︈ Brazil is near on 11% so true return on bond is near 0% after accounting︉ for inflation...lol. Also with a sovereign rating of BB- with S&P and Fitch with outlook︊ negative its a risky play. You could look into CDS's for protection but again would︋ be uneconomical to buy.

 

[troubled soul]

Where you‌ invest money now?? Rather than bond, Really curious???
If you are comfortable, Do you mind‍ sharing with us?

Thanks

 

[Martin Everson]

I created the below thread to find ideas from people on where to put it.‍ But I am almost certain it will go into hard tangible assets and no longer⁠ financial market instruments. I think I am done with paper assets for good due to⁤ political risks and ease of confiscation.

https://www.offshorecorptalk.com/th...-future-potential-sanctions.36646/post-205537

The money is now back in my trust⁢ currently as it awaits a new home in some new tangible assets cig-:,. I might︀ just buy a private island with good elevation and develop it.

https://www.privateislandsonline.com/caribbean/bahamas/the-exumas/lumber-cay

 

[JackAlabama]

Good idea. It has to be far away and look like a⁢ lot of hard labour to keep the communists away from sacking it.
Or better, create︀ your own sovereign island state 😉

 

[clemens]

that's an inetersting website. If I had the money I would by⁢ such an Island... however, what about infrastructure, Internet, electricity and similar that is required to︀ live on a island, how would you go about that?

 

[JackAlabama]

You also need⁠ defense ideally a small army 😉

 

[Martin Everson]

Developing it would⁠ not be cheap at all. Power is easy with a 50k to 100k solar array⁤ or wind turbines with battery banks. Internet would likely be satellite based. Then finally installation⁣ of a miniature desalination plant for fresh water and a dock for a small boats.⁢ The rest of cost is then buildings and construction. Ideal model would be to live︀ part time and rent it out like Richard Branson's Necker island smi(&%.

https://www.virginlimitededition.com/en/necker-island

You would need some︂ pet dogs......lol.

P.S This is all wishful thinking. The reality of developing an island would︃ bankrupt me. Back to thread topic.

 

[aage]

I knew it was you





congrats @Martin Everson

 

[Martin Everson]

Not quite‌ ready to be Robinson Crusoe smi(&%. But yeah that lifestyle appeals to me 😛.

 

[aage]

not bad at all! nice idea.

 

[clemens]

it sounds like a straight forward process and easy,⁢ hope you will manage it, I will come and visit your island cig-:,

 

[Martin Everson]

I will hold an annual offshorecorptalk conference on the island smi(&%.