A bond market rally is underway on a global scale as investors from various countries are looking to complement their equities portfolio with bonds. From locking in yields to volatility safety, the reasons for the move vary.
“Bond mania seems to have taken hold everywhere – from China and Japan to the US, the UK and Europe,” a South China Morning Post article noted.
At the start of the year, investors were already expecting rate cuts from the U.S. Federal Reserve as investors added bonds to lock in yields at the then-current rates. Now, market volatility and geopolitical tensions are also adding tailwinds to bonds as a safe haven asset.
“The bond issuance boom has to do partly with anxiety among everyone, from governments and business corporations to private investors,” SCMP added. “They are locking in funds ahead of looming global conflicts, the US presidential election, interest rate and inflation uncertainty, and so on.”
Investors looking to add international bond exposure to diversify their current portfolio have a plethora of options. Adding bonds from specific countries can come with overconcentration risk. So another way is to opt for exchange traded funds (ETFs) that can provide broad exposure. To that end, Vanguard has a pair of options to consider.
2 Options for International Exposure
With a low 0.07% expense ratio, a cost-effective option to consider is the Vanguard Total International Bond Index Fund ETF Shares (BNDX ). It offers exposure to strictly international debt without exposure to the U.S. bond market. It can serve as an ideal complement to a bond portfolio that’s already exposed to U.S. bonds.
Per its fund description, BNDX seeks to track the performance of the Bloomberg Global Aggregate ex-USD Float Adjusted RIC Capped Index. Its portfolio is primarily investment-grade debt. So credit risk is minimized, which is ideal for investors looking for quality debt overseas. Furthermore, the fund’s 30-day SEC yield is 2.97% as of Sept. 13.
Investors who don’t already have exposure to U.S. bonds but still want a diversified approach to a bond portfolio should consider the Vanguard Total World Bond ETF (BNDW ). The fund seeks to track the performance of the Bloomberg Global Aggregate Float Adjusted Composite Index. That index measures the investment return of investment-grade U.S. bonds and investment-grade non-U.S.-dollar-denominated bonds. The fund also has a low expense ratio of just 0.05% and a 30-day SEC yield of 4.03% as of Sept. 13.
For more news, information, and analysis, visit the Fixed Income Channel.
