Escalating tensions from the Russia-Ukraine war are putting world stock markets on notice, while a risk-off sentiment is helping to feed into safe haven assets like bonds. Given this, it’s an ideal time to consider international bond exposure.
The post-U.S.-election euphoria appears to be dissipating as world conflicts come back into the forefront of global investors’ minds. When considering international bond exposure, geopolitical factors can play a crucial role.
“Geopolitical does not matter for financial markets until it does,” said Brad Bechtel, global head of FX at Jefferies.
Worried investors sought the refuge of mostly developed market bonds, such as U.S. Treasuries and bonds in the United Kingdom as well as the Eurozone. Investors who are staying with equities are more than likely opting for the U.S., especially with the S&P 500, which is up over 20% year-to-date.
Fixed income investors worried about falling yields will welcome the forecast from the Wells Fargo Investment Institute. The institute increased its forecasts on Treasury yields in 2025, noting that the policies of President-elect Donald Trump will result in stronger economic growth and, in turn, inflation.
Getting worldwide bond exposure will allow investors to take advantage of other countries that are in varying economic cycles as opposed to the U.S. Whether the goal is for additional yield or price appreciation, international bonds add a healthy dose of diversification that can benefit any fixed income portfolio.
Where can investors reap the benefits of safety in U.S. bonds while also diversifying their exposure to other countries?
Worldwide Bond Exposure
Fixed income investors looking to get a diversified portfolio of bonds within and also outside of U.S. borders can opt to build their own bond portfolio. However, there’s an easier way to get broad-based exposure via the Vanguard Total World Bond ETF (BNDW ).
Per its baseline fund description, BNDW 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.
BNDW accomplishes its focus by essentially using a fund of funds exposure, composed mainly of two ETFs: the Vanguard Total International Bond Index Fund ETF Shares (BNDX ) for exposure outside of U.S. bonds and the Vanguard Total Bond Market Index Fund ETF Shares (BND ).
Like most of Vanguard’s fixed income suite of ETFs, BNDW comes with a low expense ratio of just 0.05%. As of October 31, its 30-day SEC yield is 4.16%.
For more news, information, and analysis, visit the Fixed Income Channel.
