January Effect Dollar Hedges

‘January Effect’ To Bring Down Cost Of Dollar Hedges

Just wait for January. That’s the message from Bank of America Merrill Lynch to foreign investors in U.S. credit hit by hefty premiums for dollar hedges. The bank expects hedging costs to decline by 58bps, perhaps a lot more.

“We think this (January) effect is very meaningful and as result expect foreign buying of U.S. corporate bonds to accelerate in January,” the bank said in a research note Dec. 19. One-month hedging costs should decline at least to 3-month costs, which currently implies a . . .


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