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 ...

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