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Strategies & Market Trends : The coming US dollar crisis -- Ignore unavailable to you. Want to Upgrade?

To: carranza2 who wrote (44183)	1/24/2012 5:37:14 PM
From: Real Man	Respond to of 71477

I guess so. What I tried to say before was that your profit depends on absolute rate increase, not percentage increase. For example, if rates increase by 1%, you get 10.5% profit if we forget coupons. This means rates more than triple if they were at .3% - and you get little return. If they double from here (1%) your profit is 10%. That provided the yen does not soar 10% - then you get nothing. The yen is also present (you short it). Then you have to pay annual fees and interest on JGB. If you get lucky and yen tanks 20%, while rates rise 100% (from 1% to 2%), your profit is 31%. That's why I suggested a bond calculator. You can google it. Yeah, if SHTF currency crisis hits Japan, rates go banana while Yen crashes, you win big. But most likely your cash will sit there eat your money - not much, but eat. Again, yen drop will help. If you are in 3x stuff, then who knows what's in there, most likely you pay US rates. ZIRP too, of course.

To: carranza2 who wrote (44183)	1/25/2012 6:20:11 AM
From: Real Man	Read Replies (1) \| Respond to of 71477

Investopedia has a good tutorial and a calculator. So, you can set par equal to redemption value (say, 1000), then put 2 different numbers as "Annual rate" and "yield". For example, if you put 1% for "Annual Rate" and 2% for "yield", you will see what happens to JGB if Japanese interest rates rise from 1% to 2%. Put maturity date 10 years from now to model a 10-year bond. Links at the bottom explain the concepts. Of course, if bond trades in a foreign currency, it's pretty obvious that someone who is long the bond is also long the currency, provided there is no currency hedging. The quants can sure put many layers of complexity on chit you buy, then you have no idea what you bought and what will influence the price! It sure helps to get that idea, at least roughly, before buying or selling something. investopedia.com