Interest Rates - What am I missing?

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trustquestioner
Posts: 13
Joined: Sun Sep 03, 2017 6:50 pm

Interest Rates - What am I missing?

Post by trustquestioner » Mon Oct 16, 2017 9:18 am

With interest rates in Europe functionally at zero, and with some bonds trading at negative yield, isn't there an opportunity?

Why would one not, on a leveraged basis, borrow in Euros and invest in US bonds? Of course if it were this easy everyone would be doing it - just want to understand what I'm overlooking.

Theseus
Posts: 242
Joined: Sat Jan 23, 2016 9:40 am

Re: Interest Rates - What am I missing?

Post by Theseus » Mon Oct 16, 2017 9:21 am

There is a currency risk involved. Euro was $1.08 earlier in the year and today it is $1.18. You can not know for sure if you are going to make money or loose money when you cash out - even with higher interest return of US.

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JoMoney
Posts: 4400
Joined: Tue Jul 23, 2013 5:31 am

Re: Interest Rates - What am I missing?

Post by JoMoney » Mon Oct 16, 2017 9:22 am

It is done. It's called "carry trade". When exchange rates move, which can happen quickly, you can get crushed.
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham

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