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.
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
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.
-
8 Rules for Choosing the Right Financial AdviserNot all advisers are created equal. Here's how to find one qualified to manage your wealth and protect your legacy. From verifying credentials to trusting your gut, follow these rules to find a financial adviser.
-
A Hated TSA Rule Was Finally Phased OutAfter nearly 20 years, the TSA is ending its shoes-off policy. Travelers will still need a Real ID, and advanced screening remains in place. Here’s what to expect on your next flight.
-
Best Banks for High-Net-Worth Clientswealth management These banks welcome customers who keep high balances in deposit and investment accounts, showering them with fee breaks and access to financial-planning services.
-
White House Probes Tracking Tech That Monitors Workers’ Productivity: Kiplinger Economic ForecastsEconomic Forecasts White House probes tracking tech that monitors workers’ productivity: Kiplinger Economic Forecasts
-
Stock Market Holidays in 2025: NYSE, NASDAQ and Wall Street HolidaysMarkets When are the stock market holidays? Here, we look at which days the NYSE, Nasdaq and bond markets are off in 2025.
-
Stock Market Trading Hours: What Time Is the Stock Market Open Today?Markets When does the market open? While the stock market does have regular hours, trading doesn't necessarily stop when the major exchanges close.
-
Bogleheads Stay the CourseBears and market volatility don’t scare these die-hard Vanguard investors.
-
The Current I-Bond Rate Is Mildly Attractive. Here's Why.Investing for Income The current I-bond rate is active until November 2025 and presents an attractive value, if not as attractive as in the recent past.
-
What Are I-Bonds? Inflation Made Them Popular. What Now?savings bonds Inflation has made Series I savings bonds, known as I-bonds, enormously popular with risk-averse investors. So how do they work?
-
Investing in Emerging Markets Still Holds PromiseEmerging markets have been hit hard in recent years, but investors should consider their long runway for potential growth.
