Pfandbriefe: a better investment in high quality bonds?

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Lauretta
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Pfandbriefe: a better investment in high quality bonds?

Post by Lauretta » Sun Jan 07, 2018 9:20 am

I have come across an iShares ETF (iShares Pfandbriefe UCITS ETF (DE) EXHE, listed in Europe) tracking Plandbriefe (highly rated German bank debentures) which I am thinking might be a better alternative to a bond fund tracking Eurozone Governement Bonds.
My thinking is that Pfandbriefe are probably safer than government bonds from e.g. Italy (and maybe France). Also, if the eurozone were to disintegrate, I guess they would be reimboursed in marks which would likely be stronger than the lira (my home country old currency).
Any comments/suggestions would be very welcome!
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Re: Pfandbriefe: a better investment in high quality bonds?

Post by Valuethinker » Sun Jan 07, 2018 11:14 am

Lauretta wrote:
Sun Jan 07, 2018 9:20 am
I have come across an iShares ETF (iShares Pfandbriefe UCITS ETF (DE) EXHE, listed in Europe) tracking Plandbriefe (highly rated German bank debentures) which I am thinking might be a better alternative to a bond fund tracking Eurozone Governement Bonds.
My thinking is that Pfandbriefe are probably safer than government bonds from e.g. Italy (and maybe France). Also, if the eurozone were to disintegrate, I guess they would be reimboursed in marks which would likely be stronger than the lira (my home country old currency).
Any comments/suggestions would be very welcome!
If you understand whose credit Risk you are bearing and what could lead to a default then invest. Gotta love those German shipping loans. :sharebeer

There has never been a pf default, therefore there will never be one.

Note also you can buy Canadian covered bonds too. There has not been a synchronized housing price crash since the 1930s therefore there will never be one. European financial institutions have been gobbling them up. It should go well. :sharebeer

In plainer English. The risk on these things is indeterminate. Because there is no loss experience. We have to assume nothing could force a mass default on covered bonds, and the markets pricing re risk and return is accurate. But I'd rather own a global government bond fund (investment grade).

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Re: Pfandbriefe: a better investment in high quality bonds?

Post by Lauretta » Sun Jan 07, 2018 11:29 am

Valuethinker wrote:
Sun Jan 07, 2018 11:14 am
If you understand whose credit Risk you are bearing and what could lead to a default then invest.
Actually I don't have a clue on this :D - I have just discovered the iShares fund I mentioned and then saw on Wikipedia that Pfandbriefe are mostly triple A rated, so I based my considerations on that piece of information.
Above all, Eurozone government bonds have the danger that if Italy and/or France break out of the eurozone they might reimbourse debt in their local, devalued currency (as an Italian investor the danger of France breaking out of the EU as LePen threatened to do, and reimboursing in francs is the greater one for me, though at least till the next Presidential election there's no such danger I think). Anyway, this danger doesn't seem to apply to Pfandbriefe and if the eurozone were to break up and Pfandbriefe were reimboursed in marks (though I am not sure this would be the case) it would be better for Italian investors.
Last edited by Lauretta on Sun Jan 07, 2018 11:37 am, edited 1 time in total.
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Re: Pfandbriefe: a better investment in high quality bonds?

Post by Lauretta » Sun Jan 07, 2018 11:35 am

Valuethinker wrote:
Sun Jan 07, 2018 11:14 am
But I'd rather own a global government bond fund (investment grade).
yes that is the safest bet as far as default risk is concerned, though you have currency risk. And if a Eurozone investor hedges for the currency risk, I understand that the cost of currency hedging will make returns negative, at least for shorter maturities.
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Re: Pfandbriefe: a better investment in high quality bonds?

Post by lack_ey » Sun Jan 07, 2018 11:56 am

Overall the duration is lower and credit quality probably higher than on the Euro government bonds, and there's correspondingly lower yields.

I don't necessarily trust the ratings agencies on these kinds of categories. It's hard to model a lot of the unknown and underlying relationships. Also, in a narrower category you have less diversification. As a more extreme example, if you had a portfolio of A average bonds from the utility sector, I would say this has more risk than a portfolio of A- average bonds across all kinds of different issuers.

Though really, at these kinds of yields on safe bond funds, are there not any retail banking products that are suitable alternatives? I don't know what's available.

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Re: Pfandbriefe: a better investment in high quality bonds?

Post by Lauretta » Sun Jan 07, 2018 12:28 pm

lack_ey wrote:
Sun Jan 07, 2018 11:56 am
Overall the duration is lower and credit quality probably higher than on the Euro government bonds, and there's correspondingly lower yields.

I don't necessarily trust the ratings agencies on these kinds of categories. It's hard to model a lot of the unknown and underlying relationships. Also, in a narrower category you have less diversification. As a more extreme example, if you had a portfolio of A average bonds from the utility sector, I would say this has more risk than a portfolio of A- average bonds across all kinds of different issuers.

Though really, at these kinds of yields on safe bond funds, are there not any retail banking products that are suitable alternatives? I don't know what's available.
Thank you for these good remarks. You are right, there are some structured products with net yields around 2% and which guarantee your capital by contract, but which however probably carry some risks (like the French Assurance Vie which I have discussed in another thread).
Another reason why I have become interested in Pfandbriefe though is that I have read quite a lot about the possibility of Italy breaking up from the Eurozone. In that case the lira would very likely be devalued; so having investments denominated in euros - or marks - I am not sure what would happen to Pfandbriefe in that case - would very likely be a good thing.
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Re: Pfandbriefe: a better investment in high quality bonds?

Post by Valuethinker » Sun Jan 07, 2018 1:37 pm

Lauretta wrote:
Sun Jan 07, 2018 11:29 am
Valuethinker wrote:
Sun Jan 07, 2018 11:14 am
If you understand whose credit Risk you are bearing and what could lead to a default then invest.
Actually I don't have a clue on this :D - I have just discovered the iShares fund I mentioned and then saw on Wikipedia that Pfandbriefe are mostly triple A rated, so I based my considerations on that piece of information.
Above all, Eurozone government bonds have the danger that if Italy and/or France break out of the eurozone they might reimbourse debt in their local, devalued currency (as an Italian investor the danger of France breaking out of the EU as LePen threatened to do, and reimboursing in francs is the greater one for me, though at least till the next Presidential election there's no such danger I think). Anyway, this danger doesn't seem to apply to Pfandbriefe and if the eurozone were to break up and Pfandbriefe were reimboursed in marks (though I am not sure this would be the case) it would be better for Italian investors.
A covered bond (Pf, Cedulos in Spain, AktionCredit something in Denmark ...) differs from a normal securitization in that final recourse remains with the balance sheet of the originator-- the bank issuing the covered bond. In practice, for US Agency securities, the US Federal government has assumed that risk (but you do have prepayment risk/ extension risk, which is generally not a feature of Mortgage Backed Securities in other markets).

The wikipedia isn't bad - the Germans tightly regulate what goes into these things BUT shipping loans? That's not a healthy sector at the moment.

The point is there is an absence of credit experience to assess risk of default ex ante. The Rating Agencies are doing their best.

If a financial institution in the Eurozone goes bust, bondholders will be "bailed in" -- that caused a shoot-storm in the case of Monte di Paschi di Sienna, and the Germans will insist on it the next time. Bonds are not deposits.

BTW ECB has been buying Pf as part of QE, I believe. Thus the appetite for Canadian covered bonds by European investors. And there are many threads where I opine on the risks of the Canadian housing market- -suffice it to say it makes the US market in 2006 look healthy.

I'd rather hold a global government bond fund-- diversifies across credit risk. If I didn't trust on my own government to make good the 100k EUR deposit guarantee for financial institutions.

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Re: Pfandbriefe: a better investment in high quality bonds?

Post by Lauretta » Sun Jan 07, 2018 5:06 pm

Valuethinker wrote:
Sun Jan 07, 2018 1:37 pm
Lauretta wrote:
Sun Jan 07, 2018 11:29 am
Valuethinker wrote:
Sun Jan 07, 2018 11:14 am
If you understand whose credit Risk you are bearing and what could lead to a default then invest.
Actually I don't have a clue on this :D - I have just discovered the iShares fund I mentioned and then saw on Wikipedia that Pfandbriefe are mostly triple A rated, so I based my considerations on that piece of information.
Above all, Eurozone government bonds have the danger that if Italy and/or France break out of the eurozone they might reimbourse debt in their local, devalued currency (as an Italian investor the danger of France breaking out of the EU as LePen threatened to do, and reimboursing in francs is the greater one for me, though at least till the next Presidential election there's no such danger I think). Anyway, this danger doesn't seem to apply to Pfandbriefe and if the eurozone were to break up and Pfandbriefe were reimboursed in marks (though I am not sure this would be the case) it would be better for Italian investors.
A covered bond (Pf, Cedulos in Spain, AktionCredit something in Denmark ...) differs from a normal securitization in that final recourse remains with the balance sheet of the originator-- the bank issuing the covered bond. In practice, for US Agency securities, the US Federal government has assumed that risk (but you do have prepayment risk/ extension risk, which is generally not a feature of Mortgage Backed Securities in other markets).

The wikipedia isn't bad - the Germans tightly regulate what goes into these things BUT shipping loans? That's not a healthy sector at the moment.

The point is there is an absence of credit experience to assess risk of default ex ante. The Rating Agencies are doing their best.

If a financial institution in the Eurozone goes bust, bondholders will be "bailed in" -- that caused a shoot-storm in the case of Monte di Paschi di Sienna, and the Germans will insist on it the next time. Bonds are not deposits.

BTW ECB has been buying Pf as part of QE, I believe. Thus the appetite for Canadian covered bonds by European investors. And there are many threads where I opine on the risks of the Canadian housing market- -suffice it to say it makes the US market in 2006 look healthy.

I'd rather hold a global government bond fund-- diversifies across credit risk. If I didn't trust on my own government to make good the 100k EUR deposit guarantee for financial institutions.
Ok, thanks for these explanations :happy
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Re: Pfandbriefe: a better investment in high quality bonds?

Post by Lauretta » Fri Jan 12, 2018 3:23 am

Valuethinker wrote:
Sun Jan 07, 2018 1:37 pm

I'd rather hold a global government bond fund-- diversifies across credit risk. If I didn't trust on my own government to make good the 100k EUR deposit guarantee for financial institutions.
trouble is, they are quite volatile - last year they lost more than 5% (largely because of currency risk I think). See e.g. http://www.morningstar.it/it/etf/snapsh ... 0P0000ZJJG
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Re: Pfandbriefe: a better investment in high quality bonds?

Post by Valuethinker » Fri Jan 12, 2018 5:27 am

Lauretta wrote:
Fri Jan 12, 2018 3:23 am
Valuethinker wrote:
Sun Jan 07, 2018 1:37 pm

I'd rather hold a global government bond fund-- diversifies across credit risk. If I didn't trust on my own government to make good the 100k EUR deposit guarantee for financial institutions.
trouble is, they are quite volatile - last year they lost more than 5% (largely because of currency risk I think). See e.g. http://www.morningstar.it/it/etf/snapsh ... 0P0000ZJJG
If it is currency hedged that would not be the case?

There is interest rate volatility in any case. The duration of these funds is around 9 years from memory. A short term bond fund may be a reasonable alternative.

It looks like this bond uses synthetics (I am guessing what the Italian says). If you can find a physical replication, that would be better-- ishares in particular tends to use physical I believe.

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Re: Pfandbriefe: a better investment in high quality bonds?

Post by Lauretta » Fri Jan 12, 2018 5:49 am

Valuethinker wrote:
Fri Jan 12, 2018 5:27 am
Lauretta wrote:
Fri Jan 12, 2018 3:23 am
Valuethinker wrote:
Sun Jan 07, 2018 1:37 pm

I'd rather hold a global government bond fund-- diversifies across credit risk. If I didn't trust on my own government to make good the 100k EUR deposit guarantee for financial institutions.
trouble is, they are quite volatile - last year they lost more than 5% (largely because of currency risk I think). See e.g. http://www.morningstar.it/it/etf/snapsh ... 0P0000ZJJG
If it is currency hedged that would not be the case?

There is interest rate volatility in any case. The duration of these funds is around 9 years from memory. A short term bond fund may be a reasonable alternative.

It looks like this bond uses synthetics (I am guessing what the Italian says). If you can find a physical replication, that would be better-- ishares in particular tends to use physical I believe.
Thanks for your feedback. Yes there's a currency hedged ETF also by db, though as you know hedging costs will swamp any gain due to higher yields in e.g. US bonds, bringing them to the level of eurozone yields - so in 2017 it was flat. At least one avoids currency risk though. I believe db are physical; however I did find also an iShares global bond ETF hedged to Euro, but funnily enough it seems to be listed only on the LSE! :D
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Re: Pfandbriefe: a better investment in high quality bonds?

Post by Valuethinker » Fri Jan 12, 2018 6:16 am

Lauretta wrote:
Fri Jan 12, 2018 5:49 am
Valuethinker wrote:
Fri Jan 12, 2018 5:27 am
Lauretta wrote:
Fri Jan 12, 2018 3:23 am
Valuethinker wrote:
Sun Jan 07, 2018 1:37 pm

I'd rather hold a global government bond fund-- diversifies across credit risk. If I didn't trust on my own government to make good the 100k EUR deposit guarantee for financial institutions.
trouble is, they are quite volatile - last year they lost more than 5% (largely because of currency risk I think). See e.g. http://www.morningstar.it/it/etf/snapsh ... 0P0000ZJJG
If it is currency hedged that would not be the case?

There is interest rate volatility in any case. The duration of these funds is around 9 years from memory. A short term bond fund may be a reasonable alternative.

It looks like this bond uses synthetics (I am guessing what the Italian says). If you can find a physical replication, that would be better-- ishares in particular tends to use physical I believe.
Thanks for your feedback. Yes there's a currency hedged ETF also by db, though as you know hedging costs will swamp any gain due to higher yields in e.g. US bonds, bringing them to the level of eurozone yields - so in 2017 it was flat. At least one avoids currency risk though. I believe db are physical; however I did find also an iShares global bond ETF hedged to Euro, but funnily enough it seems to be listed only on the LSE! :D
LSE is the largest stock market in Europe by far - so I guess the presumption is that any EU investor will have access to it.

One cannot chase yields with bonds, and ignore risks. An unhedged bond fund is basically a currency speculation, not an investment in fixed income. This is particularly true given where bond yields are right now (very low). Even big currencies flex 10-15% against each other p.a. (I don't know what the actual volatility stats are, but I would think of that magnitude).

If you want yield in govt bonds and are EUR zone based, then a US Treasury bond fund looks attractive -- 2.6% yield on the 10 year Treasury. That is if the fund is unhedged as to currency. Otherwise there are Emerging Market bond funds, and the bonds in those are normally USD bonds-- yields will again be somewhat higher.

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Re: Pfandbriefe: a better investment in high quality bonds?

Post by Lauretta » Fri Jan 12, 2018 6:35 am

Valuethinker wrote:
Fri Jan 12, 2018 6:16 am
Otherwise there are Emerging Market bond funds, and the bonds in those are normally USD bonds-- yields will again be somewhat higher.
Yes, also there are some EM bonds in Euros (I don't know whether they are issued in Euros (the Morningstar cathegory in France is called Obligations Marchés Emergents Dominante EUR -I am not sure why they say Dominante and not Hedged (couvert in French)) or whether they are also issued in USD like you say and then are Euro hedged (more likely, since the cathegory contains some ETFs such as this iShares J.P. Morgan $ EM Bond EUR Hedged UCITS ETF (Dist) (EUR) | IS3C)). Probably worth a small allocation in one's portfolio.
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Re: Pfandbriefe: a better investment in high quality bonds?

Post by Valuethinker » Fri Jan 12, 2018 7:22 am

Lauretta wrote:
Fri Jan 12, 2018 6:35 am
Valuethinker wrote:
Fri Jan 12, 2018 6:16 am
Otherwise there are Emerging Market bond funds, and the bonds in those are normally USD bonds-- yields will again be somewhat higher.
Yes, also there are some EM bonds in Euros (I don't know whether they are issued in Euros (the Morningstar cathegory in France is called Obligations Marchés Emergents Dominante EUR -I am not sure why they say Dominante and not Hedged (couvert in French)) or whether they are also issued in USD like you say and then are Euro hedged (more likely, since the cathegory contains some ETFs such as this iShares J.P. Morgan $ EM Bond EUR Hedged UCITS ETF (Dist) (EUR) | IS3C)). Probably worth a small allocation in one's portfolio.
If they hedge the dollar payments of the bonds back into EUR, then you will get the EUR interest rate (the risk free rate + the credit spread). The cost of hedging reflects the interest rate differentials between USD & EUR (basically, the difference in short term interest rates, up to about 1 year*).

There's 2 ways to higher yield for a Eurozone investor:

- currency risk e.g. holding USD bond fund that does not hedge into EUR

- credit risk

(there's also liquidity risk, corporate bonds also have some liquidity risk)

* it depends on the term of currency forwards and futures they use, but without any additional information, 1 year seems a reasonable guess.

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Re: Pfandbriefe: a better investment in high quality bonds?

Post by Lauretta » Fri Jan 12, 2018 8:04 am

Valuethinker wrote:
Fri Jan 12, 2018 7:22 am
Lauretta wrote:
Fri Jan 12, 2018 6:35 am
Valuethinker wrote:
Fri Jan 12, 2018 6:16 am
Otherwise there are Emerging Market bond funds, and the bonds in those are normally USD bonds-- yields will again be somewhat higher.
Yes, also there are some EM bonds in Euros (I don't know whether they are issued in Euros (the Morningstar cathegory in France is called Obligations Marchés Emergents Dominante EUR -I am not sure why they say Dominante and not Hedged (couvert in French)) or whether they are also issued in USD like you say and then are Euro hedged (more likely, since the cathegory contains some ETFs such as this iShares J.P. Morgan $ EM Bond EUR Hedged UCITS ETF (Dist) (EUR) | IS3C)). Probably worth a small allocation in one's portfolio.
If they hedge the dollar payments of the bonds back into EUR, then you will get the EUR interest rate (the risk free rate + the credit spread). The cost of hedging reflects the interest rate differentials between USD & EUR (basically, the difference in short term interest rates, up to about 1 year*).

There's 2 ways to higher yield for a Eurozone investor:

- currency risk e.g. holding USD bond fund that does not hedge into EUR

- credit risk

(there's also liquidity risk, corporate bonds also have some liquidity risk)

* it depends on the term of currency forwards and futures they use, but without any additional information, 1 year seems a reasonable guess.
Thanks. Yes I undersand this. The one thing I was curious about is whether some debt in EM is also issued in Euros, or whether it's always issued in USD and then hedged to euros in some funds. In e.g. Morningstar.co.uk there's a cathegory: EM Bonds - Euro biased; they use the word biased and not hedged (whereas they have Global bonds Euro Hedged or US large caps Euro Hedged etc). So I was wondering about this. But from the practical point of view it wouldn't change much since in both cases you avoid currency risk.
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Re: Pfandbriefe: a better investment in high quality bonds?

Post by Valuethinker » Fri Jan 12, 2018 9:09 am

Lauretta wrote:
Fri Jan 12, 2018 8:04 am
Valuethinker wrote:
Fri Jan 12, 2018 7:22 am
Lauretta wrote:
Fri Jan 12, 2018 6:35 am
Valuethinker wrote:
Fri Jan 12, 2018 6:16 am
Otherwise there are Emerging Market bond funds, and the bonds in those are normally USD bonds-- yields will again be somewhat higher.
Yes, also there are some EM bonds in Euros (I don't know whether they are issued in Euros (the Morningstar cathegory in France is called Obligations Marchés Emergents Dominante EUR -I am not sure why they say Dominante and not Hedged (couvert in French)) or whether they are also issued in USD like you say and then are Euro hedged (more likely, since the cathegory contains some ETFs such as this iShares J.P. Morgan $ EM Bond EUR Hedged UCITS ETF (Dist) (EUR) | IS3C)). Probably worth a small allocation in one's portfolio.
If they hedge the dollar payments of the bonds back into EUR, then you will get the EUR interest rate (the risk free rate + the credit spread). The cost of hedging reflects the interest rate differentials between USD & EUR (basically, the difference in short term interest rates, up to about 1 year*).

There's 2 ways to higher yield for a Eurozone investor:

- currency risk e.g. holding USD bond fund that does not hedge into EUR

- credit risk

(there's also liquidity risk, corporate bonds also have some liquidity risk)

* it depends on the term of currency forwards and futures they use, but without any additional information, 1 year seems a reasonable guess.
Thanks. Yes I undersand this. The one thing I was curious about is whether some debt in EM is also issued in Euros, or whether it's always issued in USD and then hedged to euros in some funds. In e.g. Morningstar.co.uk there's a cathegory: EM Bonds - Euro biased; they use the word biased and not hedged (whereas they have Global bonds Euro Hedged or US large caps Euro Hedged etc). So I was wondering about this. But from the practical point of view it wouldn't change much since in both cases you avoid currency risk.
There have been some EM bonds issued in Euros. For example, this would make sense for countries like Turkey, Ukraine, Morocco, Tunisia- -that have close economic ties to the EU and either export to the EU (and get paid in EUR) or receive personal remittances from citizens working in the EU (all of the above).

I'd have to google around to get any sense of how many as a percentage of all EM bonds.

There are also 2 other categories of EM bonds:

- "locals" which are EM bonds issued in their home currencies, usually for domestic investors - I believe there are some developed world funds that invest in these

- EM corporate bonds. Major corporates HQ'd in EMs issuing bonds. Many of these companies are better run than the home countries (or some western countries), and are internationally diversified. They may be of lower risk than actual bonds issued by EM governments (I am not clear on this point, but it is possible)

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Re: Pfandbriefe: a better investment in high quality bonds?

Post by Lauretta » Fri Jan 12, 2018 11:48 am

Valuethinker wrote:
Fri Jan 12, 2018 9:09 am
Lauretta wrote:
Fri Jan 12, 2018 8:04 am
Valuethinker wrote:
Fri Jan 12, 2018 7:22 am
Lauretta wrote:
Fri Jan 12, 2018 6:35 am
Valuethinker wrote:
Fri Jan 12, 2018 6:16 am
Otherwise there are Emerging Market bond funds, and the bonds in those are normally USD bonds-- yields will again be somewhat higher.
Yes, also there are some EM bonds in Euros (I don't know whether they are issued in Euros (the Morningstar cathegory in France is called Obligations Marchés Emergents Dominante EUR -I am not sure why they say Dominante and not Hedged (couvert in French)) or whether they are also issued in USD like you say and then are Euro hedged (more likely, since the cathegory contains some ETFs such as this iShares J.P. Morgan $ EM Bond EUR Hedged UCITS ETF (Dist) (EUR) | IS3C)). Probably worth a small allocation in one's portfolio.
If they hedge the dollar payments of the bonds back into EUR, then you will get the EUR interest rate (the risk free rate + the credit spread). The cost of hedging reflects the interest rate differentials between USD & EUR (basically, the difference in short term interest rates, up to about 1 year*).

There's 2 ways to higher yield for a Eurozone investor:

- currency risk e.g. holding USD bond fund that does not hedge into EUR

- credit risk

(there's also liquidity risk, corporate bonds also have some liquidity risk)

* it depends on the term of currency forwards and futures they use, but without any additional information, 1 year seems a reasonable guess.
Thanks. Yes I undersand this. The one thing I was curious about is whether some debt in EM is also issued in Euros, or whether it's always issued in USD and then hedged to euros in some funds. In e.g. Morningstar.co.uk there's a cathegory: EM Bonds - Euro biased; they use the word biased and not hedged (whereas they have Global bonds Euro Hedged or US large caps Euro Hedged etc). So I was wondering about this. But from the practical point of view it wouldn't change much since in both cases you avoid currency risk.
There have been some EM bonds issued in Euros. For example, this would make sense for countries like Turkey, Ukraine, Morocco, Tunisia- -that have close economic ties to the EU and either export to the EU (and get paid in EUR) or receive personal remittances from citizens working in the EU (all of the above).

I'd have to google around to get any sense of how many as a percentage of all EM bonds.

There are also 2 other categories of EM bonds:

- "locals" which are EM bonds issued in their home currencies, usually for domestic investors - I believe there are some developed world funds that invest in these

- EM corporate bonds. Major corporates HQ'd in EMs issuing bonds. Many of these companies are better run than the home countries (or some western countries), and are internationally diversified. They may be of lower risk than actual bonds issued by EM governments (I am not clear on this point, but it is possible)
OK, thanks for these explanations! :happy
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Re: Pfandbriefe: a better investment in high quality bonds?

Post by lack_ey » Fri Jan 12, 2018 1:04 pm

Valuethinker wrote:
Fri Jan 12, 2018 9:09 am
- "locals" which are EM bonds issued in their home currencies, usually for domestic investors - I believe there are some developed world funds that invest in these
In the US, VanEck Vectors J.P. Morgan EM Local Currency Bond ETF (EMLC) is a $5 billion ETF, and there are some others, in addition to actively managed mutual funds in the space. A lot of funds own both local currency EM debt as well as those denominated in reserve currencies like USD, depending on tactical views.
Valuethinker wrote:
Fri Jan 12, 2018 9:09 am
- EM corporate bonds. Major corporates HQ'd in EMs issuing bonds. Many of these companies are better run than the home countries (or some western countries), and are internationally diversified. They may be of lower risk than actual bonds issued by EM governments (I am not clear on this point, but it is possible)
I guess even if some of the companies are better or worse run than the governments, the stability of operation, cash flows, etc. could be higher for the company. One of the issues, of course, is that some of the more capitalism-skeptic, unstable, etc. governments could with nontrivial probability interfere with the corporations domiciled and operating there, thus kind of placing a floor on the risk and credit quality achievable even if it's not really the fault of those companies.

For what it's worth, Infosys in India has a A- rating from S&P, higher than India's BBB-, and I'm sure there are some other examples.

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Re: Pfandbriefe: a better investment in high quality bonds?

Post by Lauretta » Fri Jan 12, 2018 1:24 pm

lack_ey wrote:
Fri Jan 12, 2018 1:04 pm
in addition to actively managed mutual funds in the space. A lot of funds own both local currency EM debt as well as those denominated in reserve currencies like USD, depending on tactical views.
Since you mention activey managed funds in this sector, do you know the Templeton fund managed by Hasenstab? In Italy wealth managers often advise their clients to buy it (I think at least one of the reasons for this is that Templeton retrocedes part of the fee to the banks selling the fund, but I was wondering whether you think this fund is any good).
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lack_ey
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Re: Pfandbriefe: a better investment in high quality bonds?

Post by lack_ey » Fri Jan 12, 2018 2:02 pm

Lauretta wrote:
Fri Jan 12, 2018 1:24 pm
Since you mention activey managed funds in this sector, do you know the Templeton fund managed by Hasenstab? In Italy wealth managers often advise their clients to buy it (I think at least one of the reasons for this is that Templeton retrocedes part of the fee to the banks selling the fund, but I was wondering whether you think this fund is any good).
No. Or at least, I see that a US fund exists (Templeton Emerging Markets Bond Fund, FEMGX for A shares) co-managed by Hasenstab. I don't know if that's similar to what's offered in Italy, and I don't know much about the manager. He's a kind of global macro-style investor with bets on currencies and directions of rates, etc. I don't know more than that.

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