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BlackRock euro-bond head snubs US colleagues' tips on hedging
[LONDON] BlackRock Inc's head of euro fixed-income is ignoring recommendations from US colleagues due to the surging cost of dollar hedging.
Short-term currency hedges now cost about 4 per cent for euro investors, which can more than offset the higher yields found in the dollar market, according to London-based Michael Krautzberger, who oversees around 90 billion euros (S$140.1 billion) of fixed income assets at the world's biggest money manager. That means dollar-bond tips are no longer as appealing.
"Now I have to look twice and say ‘OK, it's attractive for you but is it attractive for me?' he said at a briefing. "Very often the answer is no."
European investors are staying at home because higher US interest rates have helped stoke dollar-hedging costs, while euro-bond yields are creeping up as the European Central Bank winds down stimulus measures.
Mr Krautzberger particularly favours investment-grade corporate notes maturing in about five years to seven years due to low leverage and "solid" earnings, he said.