malbec

Ok. Normally, you would measure duration (US rate sensitivity) and FX deltas separately, particularly since you can hedge these two things independently. As a parallel example, imagine you are pricing some other security like a call option. Call options have rates sensitivity, but you would never include this in the same risk measure as other risk components: delta, vega, etc.

malbec

The PM really wouldn't care about any number you came up with this way as it wouldn't replicate out of sample. The PM of a global bond portfolio would be much more interested in sources of alpha: duration (local interest rates), currency, and credit. Every shop will have its own proprietary models to come up with fundamental values for these numbers, and those models will often take U.S. rates into account (the differential specifically). A simple linear correlation between U.S. rates and a bond from another country isn't going to tell you anything.



Edited 1 time(s). Last edit at Sunday, September 25, 2011 at 10:30AM by buybuybuy.