Bridge over ocean
1 March 1992 Financial Analysts Journal Volume 48, Issue 2

Global and Local Components of Foreign Bond Risk

  1. Steven Dym

Three main factors affect the dollar value of a foreign-currency-denominated bond interest rate movements, foreign exchange rate movements and their interactions. Changes in a foreign bond's interest rate can be attributed to factors affecting the international capital markets as a whole ("global') and to elements specific to the particular foreign economy ("local'). Duration is an inadequate description of a foreign bond's price sensitivity to overall interest rate movements, because it ignores the significant differences in interest rate volatilities across markets.

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