BlackRock Euro-Bond Head Snubs U.S. Colleagues' Tips on Hedging

(Bloomberg) -- BlackRock Inc.’s head of euro fixed-income is ignoring recommendations from U.S. colleagues due to the surging cost of dollar hedging.

Short-term currency hedges now cost about 4 percent for euro investors, which can more than offset the higher yields found in the dollar market, according to London-based Michael Krautzberger, who oversees around 90 billion euros ($102 billion) of fixed income assets at the world’s biggest money manager. That means dollar-bond tips are no longer as appealing.

“Now I have to look twice and say ‘OK, it’s attractive for you but is it attractive for me?’ he said at a briefing. “Very often the answer is no.”

BlackRock Euro-Bond Head Snubs U.S. Colleagues' Tips on Hedging

European investors are staying at home because higher U.S. interest rates have helped stoke dollar-hedging costs, while euro bond yields are creeping up as the European Central Bank winds down stimulus measures. Krautzberger particularly favors investment-grade corporate notes maturing in about five years to seven years due to low leverage and “solid” earnings, he said.

©2018 Bloomberg L.P.