Currency Hedging of International Bond Portfolios: Effects of Unconventional Monetary Policy Regimes

We examine the influence of Quantitative Easing (QE) on hedging effectiveness and performance (E&P) of international bond portfolios. During the QE period, the bond portfolios have significantly lower excess returns and variances, and their excess return and variance sensitivities are positive and negative with the Fed's MBS holdings and are less positive and less negative with the Fed's Treasury holdings. E&P are higher for optimal versus full hedging during the QE versus pre-QE period and differ for portfolios from developed and emerging countries. Results are robust using other hedging E&P measures and excluding countries with their own QEs.

Keywords: Currency Hedging, International Bond Portfolios, Quantitative Easing, Federal Reserve’s security-type holdings

JEL Classification: E52, E58, F31, G11, G15

Suggested Citation: Suggested Citation

Kryzanowski, Lawrence and Zhang, Jie and Zhong, Rui, Currency Hedging of International Bond Portfolios: Effects of Unconventional Monetary Policy Regimes (May 28, 2018). Available at SSRN: https://ssrn.com/abstract=3123960 or http://dx.doi.org/10.2139/ssrn.3123960