Pandemic or not, cheaper dollar hedging to bolster U.S. inflows

New York

The coronavirus pandemic has slashed costs for foreign investors seeking to neutralize the currency exposure of owning dollar-denominated assets, making U.S. securities more attractive and providing an additional boost for the nation’s fixed income market.

Dollar hedging costs since the virus outbreak have declined by as much as 100 basis points for European and Japanese investors, two of the biggest overseas buyers of U.S. assets. A significant factor in the reduction was the Federal Reserve cut U.S. interest rates to zero last month to mitigate the economic impact of the pandemic, Reuters reported.

Additionally, the Fed is now actively backstopping every corner of the bond and credit sector, except distressed debt, and the U.S. economy looks primed for what could be a slew of inflows from offshore investors in the coming weeks and months, analysts said.