Foreign bonds have been a poor option over the past five years. The average annualized five-year total return on world bond funds is a paltry 1.2%. That partly reflects government bond yields in Japan and Western Europe that are far below U.S. yields, as rates there remain low amid slower economic growth. A 10-year U.S. Treasury note recently yielded nearly 3%. By contrast, 10-year government bonds yield a mere 0.06% in Japan, 0.6% in Germany and 1.3% in Spain.
Earnings for All
- 35 Ways to Earn Up to 11% on Your Money
- Short-Term Accounts: 1%-2%
- Muncipal Bonds: 2%-3%
- Investment-Grade Bonds: 3%-4%
- Foreign Bonds: 3%-5%
- High-Yield bonds: 3%-6%
- Dividend-Paying Stocks: 4%-6%
- Real-Estate Investment Trusts: 4%-9%
- Closed-End Funds: 4%-9%
- Master Limited Partnerships: 8%-11%
But for income-focused U.S. investors willing to take some risk, emerging-markets bonds offer generous yields–typically between 4% and 5%. They could log price gains if global growth continues to bolster emerging economies. Our favorite foreign-bond strategy: Own a mix of issues in both developed and emerging markets.
The risks: American investors in U.S. bonds can be hurt by fluctuating market interest rates and by defaults by bond issuers. Foreign bonds issued in foreign currencies face those risks, plus a third: swings in the value of the dollar compared with other currencies. In 2017, the dollar fell against most currencies, which boosted returns on many foreign bond funds (when the buck weakens, investments in foreign currencies translate into more dollars). A sudden rally in the dollar would have the opposite effect.
How to invest: We like T. Rowe Price Global Multi-Sector Bond (PRSNX, 3.4%), with a duration of 5.7. It holds government and corporate bonds in emerging and developed markets (including the U.S.). Its diversified mix recently included debt from issuers such as India, Thailand and Turkey. Dodge & Cox Global Bond (DODLX, 3.8%) has a relatively short duration of 3.3, with holdings split about evenly between U.S. bonds and foreign bonds. Over the past three years, both funds have gained 3.6% annualized, compared with 2.5% for the average world bond fund.
Among funds that focus solely on emerging markets, Fidelity New Markets Income (FNMIX, 4.6%), a Kip 25 member, remains a standout. The fund, with a duration of 6.6, limits currency risk by investing mainly in foreign bonds issued in dollars.
Is A Recession Looming? Two Big Bank CEOs See It That Way
Recession is likely, Citi's CEO told a Senate panel today, a sentiment echoed by JP Morgan's chief executive last week.
By Joey Solitro Published
Stock Market Today: Stocks Swing Lower as Oil Prices Retreat
A bad-news-is-good-news jobs report sent the main indexes higher at the open, but they didn't stay there for long.
By Karee Venema Published
Best Banks for High-Net-Worth Clients
wealth management Kiplinger's 2023 list of the best banks for higher-net-worth clients.
By Lisa Gerstner Published
White House Probes Tracking Tech That Monitors Workers’ Productivity: Kiplinger Economic Forecasts
Economic Forecasts White House probes tracking tech that monitors workers’ productivity: Kiplinger Economic Forecasts
By Matthew Housiaux Published
Stock Market Holidays in 2023: NYSE, NASDAQ and Wall Street Holidays
Markets When are the stock market holidays? Take a look at which days the NYSE, Nasdaq and bond markets are off in 2023.
By Kyle Woodley Last updated
Stock Market Trading Hours: What Time Is the Stock Market Open Today?
Markets When does the market open? It's true the stock market does have regular hours, but trading doesn't necessarily stop when the major exchanges close.
By Michael DeSenne Last updated
Bogleheads Stay the Course
Bears and market volatility don’t scare these die-hard Vanguard investors.
By Kim Clark Published
I-Bond Rate Is 5.27% for Next Six Months
Investing for Income I-Bonds issued November 1 to April 30 will have a rate of 5.27%.
By David Muhlbaum Last updated
What Are I-Bonds?
savings bonds Inflation has made Series I savings bonds enormously popular with risk-averse investors. So how do they work?
By Lisa Gerstner Last updated
Investing in Emerging Markets Still Holds Promise
Emerging markets have been hit hard in recent years, but investors should consider their long runway for potential growth.
By James K. Glassman Published