Portfolio Charts & Hedged Bonds

Discussion of the Bond portion of the Permanent Portfolio

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Hal
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Portfolio Charts & Hedged Bonds

Post by Hal » Fri May 14, 2021 8:22 am

Just a quick query. Was wondering how to best model a portfolio containing hedged international bonds.

For example, if you live in Australia and wanted to model 50/50 Developed World TSM & Dev World IT, would setting the home country to USA give a more accurate result due to the currency hedge?
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Tyler
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Re: Portfolio Charts & Hedged Bonds

Post by Tyler » Fri May 14, 2021 12:51 pm

Hal wrote:
Fri May 14, 2021 8:22 am
Just a quick query. Was wondering how to best model a portfolio containing hedged international bonds.

For example, if you live in Australia and wanted to model 50/50 Developed World TSM & Dev World IT, would setting the home country to USA give a more accurate result due to the currency hedge?
I don't fully understand the inner mechanics, costs, and uncertainty of currency hedging to be able to state with certainty how it affects the data. But when it comes to the PC tools, keep in mind that the home country setting controls not only the currency but also the inflation rate. So even if setting it to USA perfectly modeled a hedged fund in terms of currency (again, I'm not sure that's true), it still would not account for the inflation differences between the US and Australia.
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Re: Portfolio Charts & Hedged Bonds

Post by whatchamacallit » Fri May 14, 2021 4:44 pm

Hal,

I always wonder if other countries have something similar to the USA's I bonds or ee bonds.

https://www.treasurydirect.gov/indiv/pr ... glance.htm

These things feel like a free lunch but have limited amount you can buy each year.



I could never understand how the currency hedge worked either. I felt like it would be more beneficial to not be hedged if you wanted international bonds.
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Hal
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Re: Portfolio Charts & Hedged Bonds

Post by Hal » Fri May 14, 2021 5:06 pm

Thanks Tyler and Whatchamacallit.

No EE bonds in Australia - Just standard treasury bonds and TIPS, though back in the 80's they used to have "Aussie Bonds".
https://www.youtube.com/watch?v=93q5_8olpPs
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Re: Portfolio Charts & Hedged Bonds

Post by whatchamacallit » Fri May 14, 2021 8:56 pm

Small bit of googling fixed income options in Australia. I would be tempted by the 5 year term deposits from Judo Bank. I don't know if there is a catch but the government guaranteed rate is almost twice that of the 5 year bond.

https://www.judo.bank/personal-term-deposit
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Hal
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Re: Portfolio Charts & Hedged Bonds

Post by Hal » Sat May 15, 2021 6:24 am

whatchamacallit wrote:
Fri May 14, 2021 8:56 pm
Small bit of googling fixed income options in Australia. I would be tempted by the 5 year term deposits from Judo Bank. I don't know if there is a catch but the government guaranteed rate is almost twice that of the 5 year bond.

https://www.judo.bank/personal-term-deposit
Thanks for your detective work. Will have to investigate that.
The FDIC equivalent deposit limit here is 250K. More than high enough for us!
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