A European investor wants to invest on EDF bonds. There are 2 possibilities:

1- EDF 2,5% 2030 in Euros. Yield=1,80%

2- EDF 4% 2030 in USD. Spread over US Treasury=150 bps

Data:

a-Euro Swap 10 years trades at 0,8%

b-USD Swap 10 years trades at US Treasury+0,3%

c-Cross Currency Basis Swap EUR/USD trades at -0,50%

What should be the choice of the investor: Compare the Swap Spread (In Euros) for the 2 bonds.

References

• Options, Futures and Other Derivatives: John C. Hull

• Fixed Income Securities: Valuation, Risk Management

Portfolio Strategies: Martellini, Priaulet