In Andrew Gordons’ Barbells, Ladders, and Avoiding Bondage article, he wrote:

Why? Let’s assume you’ve bought $1,000 worth of Australian bonds. Your 6 percent interest should come to $600, right? But it’ll amount to less than that if the dollar gets stronger against the Australian dollar.

You see, your payment has to be converted from Australian to American dollars. If the Australian dollar weakens against the American dollar, it will buy fewer dollars. Say the Australian dollar goes down 10 percent against the U.S. dollar. Your $600 will also drop by 10 percent (or $60) to $540. But that’s still better than the $390 you’d get from a 10-year U.S. government bond. And 10 percent is a huge drop for a currency to take. Usually, the drops are a quarter of a percent or a third of a percent at a time.

He made 2 mistakes:

6 percent of $1000 is $60 NOT $600, no big error here probably a typo. I assume he meant $10,000 worth of Australian bonds

This is the far serious error, which makes his comments about the currency risk of buying foreign government bonds WRONG and misleading. If Australian Dollar goes down by 10% against the US Dollar, he is correct that the interest amount of $600 will drop to $540 (or by $60), but so will the Capital Amount of $10,000 drop to $9000 (or by $1000). So in fact your $10,000 will become $9540 (including interest) if the Australian Dollar goes down by 10% against the US Dollar. Basically you will be worse off.

Please inform your readers about this Error before any of them invest in foreign government bonds without understanding the full risk of both Interest and Capital currency fluctuations.

Thanks,

Maurice Shapiro