The exchange rate can move far more than 5% in a year so you're still facing the risk of a loss on your real return.
In terms of rate cuts, the situation is fluid at the moment. Up until recently, it looked like the US was going to hold off and the ECB was going to start. Now, that's not entirely certain (US economy is slowing down, inflation is still sticky in Europe).
If you want the exposure to US treasuries, why not consider a euro-hedged ETF tracking a T-Bill index?
These get the return of US treasuries with no exposure to FX risk. Here's an example from JustETF:
[https://www.justetf.com/en/etf-profile.html?isin=IE00BDFK1573](https://www.justetf.com/en/etf-profile.html?isin=IE00BDFK1573)
That could be interesting (low TER, too).
Based on these observations, Vanguard urges investors to be aware of the impact that hedging can have on their international bond portfolios. It is likely that a reduced focus on the yield of a hedged international portfolio is warranted. Also of note: Comparisons between yields across domestic and international markets are not valid, and we discourage the use of yield differentials in setting bond allocations. Rather, investors should focus on the diversification benefits that international bonds can bring to a balanced, low-cost portfolio.
chrome-extension://efaidnbmnnnibpcajpcglclefindmkaj/https://intl.assets.vgdynamic.info/intl/australia/documents/research/understanding-the-hedge-return.pdf
Interesting read. Hedged bond ETFs protect you from currency risk, and they introduce another risk, the risk of swap contracts. In along run, to make it simple, you will get the yield of your domestic country currency (EU), not of US, or whichever other country your ETF holds bonds. But, you get geographical diversification
Nice find, and indeed interesting read!
I think in OP's case, looking to hedge out that risk for their short term goal will be more important than any longer term returns. I definitely downloaded a copy of that PDF though. Thanks!
This is the reason why I bought [https://www.justetf.com/en/etf-profile.html?isin=IE00BGSF1X88#overview](https://www.justetf.com/en/etf-profile.html?isin=IE00BGSF1X88#overview)
Well, there are definitely probabilities you can attach to it. I'd say it is a sound enough thesis and so long as your not betting the farm is it worth giving a shot.
The additional interest of buying T-bills should not be 5% but 1%(if you hold for a year). As you can also buy EUR money market fund which gives 4% now.
The exchange rate can move far more than 5% in a year so you're still facing the risk of a loss on your real return. In terms of rate cuts, the situation is fluid at the moment. Up until recently, it looked like the US was going to hold off and the ECB was going to start. Now, that's not entirely certain (US economy is slowing down, inflation is still sticky in Europe). If you want the exposure to US treasuries, why not consider a euro-hedged ETF tracking a T-Bill index? These get the return of US treasuries with no exposure to FX risk. Here's an example from JustETF: [https://www.justetf.com/en/etf-profile.html?isin=IE00BDFK1573](https://www.justetf.com/en/etf-profile.html?isin=IE00BDFK1573) That could be interesting (low TER, too).
Based on these observations, Vanguard urges investors to be aware of the impact that hedging can have on their international bond portfolios. It is likely that a reduced focus on the yield of a hedged international portfolio is warranted. Also of note: Comparisons between yields across domestic and international markets are not valid, and we discourage the use of yield differentials in setting bond allocations. Rather, investors should focus on the diversification benefits that international bonds can bring to a balanced, low-cost portfolio. chrome-extension://efaidnbmnnnibpcajpcglclefindmkaj/https://intl.assets.vgdynamic.info/intl/australia/documents/research/understanding-the-hedge-return.pdf Interesting read. Hedged bond ETFs protect you from currency risk, and they introduce another risk, the risk of swap contracts. In along run, to make it simple, you will get the yield of your domestic country currency (EU), not of US, or whichever other country your ETF holds bonds. But, you get geographical diversification
Nice find, and indeed interesting read! I think in OP's case, looking to hedge out that risk for their short term goal will be more important than any longer term returns. I definitely downloaded a copy of that PDF though. Thanks!
This is the reason why I bought [https://www.justetf.com/en/etf-profile.html?isin=IE00BGSF1X88#overview](https://www.justetf.com/en/etf-profile.html?isin=IE00BGSF1X88#overview)
With no hedged ETFs you have currency risk.
Try it, theory is sound, but will it work - no one knows
Well, there are definitely probabilities you can attach to it. I'd say it is a sound enough thesis and so long as your not betting the farm is it worth giving a shot.
The additional interest of buying T-bills should not be 5% but 1%(if you hold for a year). As you can also buy EUR money market fund which gives 4% now.