RetireBy90
Thinks s/he gets paid by the post
I've been trying to understand lately why an investor would buy a euro bond at 0% when they can buy a US bond at say 1.5%.
So there could be several reasons I can think of:
1) They think that dollar will weaken. So they spent EU 884 to buy a bond at $1,000, at exchange rate of 1.13, but they don't think they will get the same exchange rate in 10 years, so the $1,000 will only equate to say EU800 at exchange rate of 1.25. So they demand a higher rate to compensate for loss in exchange rate.
2) They get other benefits like no taxes on Euro bonds or want to support their country not ours.
3) They know ECB is buying bonds so they think face value of Euro Bonds will go up.
4) They think that growth rates or GDP in EU will be better than in US - not sure how this would affect the bonds, perhaps through changes in exchange rates.
5) They think that inflation in EU and US will be different. Again, I don't really have any idea how this would affect the bonds except perhaps through changes in exchange rates.
So my question is how would changes in growth rates or inflation affect the returned principal if they bought a US bond rather than a EU bond. This would assume that both US and EU bonds have 0 risk of default.
Thanks in advance for any ideas
So there could be several reasons I can think of:
1) They think that dollar will weaken. So they spent EU 884 to buy a bond at $1,000, at exchange rate of 1.13, but they don't think they will get the same exchange rate in 10 years, so the $1,000 will only equate to say EU800 at exchange rate of 1.25. So they demand a higher rate to compensate for loss in exchange rate.
2) They get other benefits like no taxes on Euro bonds or want to support their country not ours.
3) They know ECB is buying bonds so they think face value of Euro Bonds will go up.
4) They think that growth rates or GDP in EU will be better than in US - not sure how this would affect the bonds, perhaps through changes in exchange rates.
5) They think that inflation in EU and US will be different. Again, I don't really have any idea how this would affect the bonds except perhaps through changes in exchange rates.
So my question is how would changes in growth rates or inflation affect the returned principal if they bought a US bond rather than a EU bond. This would assume that both US and EU bonds have 0 risk of default.
Thanks in advance for any ideas