U.S. Treasuries need to get a lot cheaper to attract some European investors.

Even with yields at multiyear highs, Treasuries are paying less than their pricier German peers when European insurers account for steep currency-hedging costs. A stronger dollar as the Federal Reserve is tightening policy means that currency hedging can slash returns on the 10-year benchmark to just 0.29 percent, a little over half that of Germany.

At the same time, it is punitively expensive to invest on an unhedged basis, thanks to the European Union's (EU's) stringent Solvency II regulations. For U.S. Treasuries to regain their attractiveness, yields may need to climb as much as three-quarters of a percentage point, from around 3 percent currently, before European investors return.

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