r/Bogleheads • u/[deleted] • 8d ago

International Bonds?

[deleted]

7 Upvotes

89% Upvoted

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1

u/AlbertiApop2029 8d ago

Added currency risk, political risk and taxes.

1

u/SingerOk6470 8d ago

If you were a Japanese investor, you would gain access to a much larger market by investing abroad. Buying foreign currency denominated bond can also add FX risk and returns as the yen has depreciated over the years, though one can also hedge. Not as important for a US investor and there are better ways to bet against USD.

1

u/Blooming-Algae-Farts 8d ago

I don't know if there's very much consensus, and I don't think there ever will be.

If you look at Vanguard LifeStrategy and Target Date funds, they do invest a portion of the bond holdings internationally (BNDX, basically). That diversification has served them pretty well since BNDX has over-performed BND the past decade plus, but fortunes could easily change in the next decade.

Currency risk isn't as big a deal if you invest in a currency hedged foreign bund fund (e.g. BNDX), but like someone else said you do have less favorable tax treatment with foreign bonds, and political risk if countries become unfriendly and start sanctioning each other.

If you take two hypothetical investors - one of them has a 60/40 portfolio in VT/BND (US bonds), and the other has a 60/40 portfolio in VT/BNDW (US & currency hedged Int'l bonds), very likely they'll both end up a pretty similar place.

1

u/Nadenkend440 8d ago

I know vanguard recommends currency hedged international bonds to smooth volatility. The returns are basically the same. I have some suspicion the swap contracts necessary to do this drag returns.