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Should U.S. investors own foreign bonds?

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Roboticus Aquarius
Roboticus Aquarius
6 days ago

Markowitz influenced my attitudes about Fixed Income a lot. I like Treasuries, Tips, and Stable Value Funds. These are about as close to ‘risk free’ as an asset can be for a US investor. I compare SEC Yields, and decide where to invest. Right now, with a 2.6% yield, it seems to make sense to have all my fixed income in a Stable Value fund.

Note: not all Stable Value funds are created equal. It’s important that it be backed by top-rated insurers. Also, SV funds often have redemption limitations, so one should understand those and know they can live with them before committing large sums to the fund.

Liarspoltergeist
Liarspoltergeist
5 months ago

If you own a foreign car you bought a depreciating currency hedged asset, certainly an A rated or better foreign bond is no worse.

Scrooge_McDuck88
Scrooge_McDuck88
6 months ago

I’ve done well with FEMDX Franklin Templeton emerging debts fund. I have about 10% of my bond exposure there.

johntlim
johntlim
6 months ago

Probably not necessary, but for diversification purposes I think it is advisable. I think the currency risk argument that many use to argue against international bonds (or even international stocks) is often one-sided. Yes, you take on currency risk, but you lower the currency risk associated with a nearly 100% dollar-denominated portfolio.

Bob Wilmes
Bob Wilmes
6 months ago

If you consider cyberspace a foreign country, you might want to consider one of the Bitcoin denominated bonds. After all, Cathie Woods of ARK Investments fame, predicts bitcoin will be worth $500,000 USD. She also just
invested $246 million in Coinbase stock.

The bitcoin bonds include:

  • FOMO (ISIN: LU2014382175) lasts 18 months and offers monthly growth of 0.55%, annual growth of 6.67%
  • HODL (ISIN: LU2014382902) lasts three years, with a monthly growth of 0.58% and an annual growth of 7%
  • LAMBO (ISIN: LU2014382258) has the longest term at five years, promising a monthly growth of 0.67% and an annual return on investment of 8%

I like Warren Buffett’s quote from January about bitcoin better. He called it:
“Probably rat poison squared.”

Mike Zaccardi
Mike Zaccardi
6 months ago

I don’t think that’s necessary. With ex-US bonds yielding just 0.9% in aggregate right now (vs. 1.6% US), I’d just stick with US bonds and perhaps emerging market bonds. Then use ex-US equities for international diversification. The bond market outside of the US is more of a currency play while the US vs. ex-US stock market difference is driven by other factors such as sector and industry performances, growth vs. value, small cap vs. large cap.

Andrew F.
Andrew F.
6 months ago

I have about 17% of my bond allocation in foreign bonds, and all of that is in Vanguard Total International Bond. It’s currency-hedged, which keeps the price more stable, as opposed to Vanguard’s Total International Stock, which isn’t. I’ve always thought of Vanguard as pretty conservative but here’s what they say about foreign bonds:

“Adding some currency-hedged, foreign bonds could potentially increase your portfolio diversification. An allocation of about 20% to 50% of your bonds in a low-cost, currency-hedged, international bond fund is a reasonable approach to capture the diversification benefits.”

20% – 50% seems like a pretty hefty allocation to me!

James McGlynn CFA RICP®
James McGlynn CFA RICP®
6 months ago

I’m not a fan of owning foreign bonds for a little extra yield. I want dependability and stability in my fixed income exposure. I own foreign stocks for growth but no foreign fixed income.

Sanjib Saha
Sanjib Saha
6 months ago

I own Emerging Market Govt bond through Vanguard ETF (VWOB), but nothing else at this point. I suppose exposure to foreign bonds can help diversification. Some target-date retirement funds have them too. But the current yield on developed market bonds gives me a pause. I’ve moved most of my Bond portfolio to short-term US treasury and high-quality corporate bond fund. As interest rate goes high, I’d reconsider venturing more into foreign bonds.

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