Matthews Asia Strategic Income - why they're shorting U.S. Treasuries

David_Snowball

On Feb. 14th, crash posted a note that asked about MAINX's short on U.S. Treasuries. I promised to ask management and just heard back. Here's Teresa's explanation:

Credit, currency, and interest rate are distinct dimensions of risk and return in any international bond portfolio. As such, we analyze each of these components and actively take on or hedge out any one of these dimensions of risks. About half of our securities are USD-denominated bonds of Asian companies. For example, Hyundai Motors issue bonds denominated in the Korean Won, US Dollar, amongst other currencies. When we own bonds by Hyundai denominated in USD, we are exposed to the credit of Hyundai, but the currency and interest rates of the United States. This means that when US interest rate rises (holding all other variables constant) our USD denominated bonds will fall in value. Similarly, when US interest rates fall, our USD denominated bonds will rise in value. Our long term view is that US interest rates are more likely to rise than fall. As such, we have hedged out some of the US interest rate exposure embedded in our USD denominated bonds by selling US Treasuries futures.

For what interest it holds,

David

JohnChisum

Thanks for getting that info. It makes a lot of sense.

fundalarm

thank you for confirming what i have said. this is a very common practice for any 'extended market' fixed income porfolio manager.

Ted

In case you missed her interview on WealthTrack a couple weeks ago, I'm relinking her outlook for Asia along with Peter Marber of Loomis Sayles.
Regards,
Ted
http://wealthtrack.com/recent-programs/teresa-kong-peter-marber-opportunities-emerging-markets/

Crash

This is very clear and tight. Thank you, David, fundalarm, AND Teresa Kong.