Since reaching historic lows in mid-January, Japanese government bond (JGB)yields have doubled over the last several weeks. In the process, they have eclipsed German 10-year bund yields for the first time in over 20 years.
Given the divergence of central bank policies, currencies are among the most important investment topics today. If the U.S. dollar continues to strengthen, it may be a headwind to U.S. multinationals earning revenue abroad, while boosting foreign companies that are earning revenue in the United States.
As HEDJ, the WisdomTree Europe Hedged Equity Fund recently crossed $15 billion in assets, we’ve been particularly interested to see how global exporters within Europe have been responding to a weaker euro.
The loudest argument we’ve heard for a prolonged pullback in bond yields in the United States (and around the world) has been the emergence of so-called “crossover buyers.” In this scenario, investors from Europe and Japan, disillusioned by the low yields in their respective domestic markets, seek out the comparatively higher yields of U.S. bonds.