Return on investment in American treasuries for European investors has never been so low. What does that mean?
Usually investors from the Old World do not just convert their currency into dollars and place capital in treasury bonds, but use a swap to protect against fluctuations in exchange rates.
So, now the return on these investments, taking into account hedging for Europeans, has dropped to a minimum since the founding of the single European currency.
Yields on ten-year treasuries with a hedge of the euro fell to minus 0.6%. In other words, for Europeans, owning American debt securities, taking into account the hedge, will not only not generate income, but, on the contrary, will cost certain costs.
Once again, this is the absolute minimum since the introduction of the single European currency in 1991. By the way, investments in ten-year treasuries without hedging currency risks would bring investors 2.38%.
Given the above, the positioning of speculators in the foreign exchange market seems logical. The vast majority occupies a long position on the EUR / USD pair (we are talking about futures), CFTC gives such data.
European investors are unlikely to be interested in buying US government bonds, on the other hand, equity investments also do not look attractive. The fact is that the future dividend yield of the S&P 500 wide market index for the first time since 2011 has fallen below the yield of treasuries.
But the future dividend yield on shares in Europe and Japan itself, on the contrary, is increasingly surpassing the return on investment in bonds. Obviously, it is worth recalling what happened to the markets at the moment when the last time in the States the yield on the treasuries so far exceeded the dividend yield on the shares. We saw a rather strong drop in the stock market and a significant increase in the value of treasuries.