If your bank offered you a five-year certificate of deposit that paid an annual rate of 4% on a $10,000 investment, would you buy it? I wouldn't . . . it's only getting me a $400 annualized return.
But if they told me that I only had to deposit $6,500 to get that $400 return (and they'd give me credit for the $3,500 difference), I might think about it. I'm basically getting a 6.15% annualized rate of return on my money. And yet in both cases, my "coupon" is 4%.
This is basically how these foreign trades are being conducted today.
No.
But if they told me that I only had to deposit $6,500 to get that $400 return
That's a 6.15% return.
(and they'd give me credit for the $3,500 difference)
No such thing. You're over thinking the situation.
This is basically how these foreign trades are being conducted today.
Sorry, a 4% coupon is a 4% coupon. If foreign holders sell, because they think it's too low, the return will increase. It hasn't because they aren't selling, yet.