Time to Consider Foreign Bonds

In 2023, foreign bonds deserve a place on the fringes of a total-return-oriented fixed-income portfolio.

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(Image credit: Getty Images)

I normally dismiss foreign bonds and bond funds, whether denominated in U.S. dollars or in native currencies. Looking back five years through March 3, which allows for events besides the COVID lockdowns and war in Ukraine, the broad Standard & Poor's international aggregate investment-grade index (covering developed markets) lost an annualized 2.2%, in U.S. dollars. Even counting 2022's catastrophe, S&P's U.S. aggregate bond index posted a 0.6% annual return – almost a three-point yearly advantage for staying home.

Sector and single-country comparisons do not change the narrative. Australia has a powerful export and commodity economy and relatively high bond yields – yet its corporate bonds are also 2% a year in the red since 2018, in U.S. terms.

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Jeffrey R. Kosnett
Senior Editor, Kiplinger's Personal Finance
Kosnett is the editor of Kiplinger's Investing for Income and writes the "Cash in Hand" column for Kiplinger's Personal Finance. He is an income-investing expert who covers bonds, real estate investment trusts, oil and gas income deals, dividend stocks and anything else that pays interest and dividends. He joined Kiplinger in 1981 after six years in newspapers, including the Baltimore Sun. He is a 1976 journalism graduate from the Medill School at Northwestern University and completed an executive program at the Carnegie-Mellon University business school in 1978.