Fixed Income Relative Value Analysis: A Practitioners Guide to the Theory, Tools, and Trades

Chapter 14

Relative Values of Bonds Denominated in Different Currencies

Introduction

Up to this point in the book, we’ve discussed relative value comparisons:

• among default-free bonds in the same currency;
• between bonds and bond futures contracts in the same currency;
• between default-free bonds and swaps in the same currency.

Our next task is to discuss ways in which analysts and traders can assess the relative values of default-free bonds issued in different currencies.

In combination with cross-currency basis swaps (CCBS), every bond can be expressed in USD terms (e.g. as a spread versus USD LIBOR or as a fixed rate). After describing the math leading to that expression, we investigate its applications and consequences:

• By combining the ...