Understanding International Bond Advantages?

Join Our Mailing List

In Global Investable Markets

tim[By Timothy J. McIntosh MBA CFP® MPH]

International bonds now account for more than 35% of the world’s investable assets, and yet many physicians and other investors have little or no exposure to these types of securities. International fixed income securities make up a noteworthy portion of the global investable market.

While investors in international bonds are exposed to the hazard of interest rate movements and political risks, the principal factors driving international bond prices are actually uncorrelated to the most common U.S. risk factors. This indicates a true diversification benefit for any investor. International bonds have become more prominent and attractive due to the increase in globalization and the pervasive expansion of debt issuance overseas, primarily by governments. There has been a near doubling of the relative weight of the non-U.S. bond market from approximately 19% in 2000 to approximately 37% in 2011.  Thus, there is more selection of international bonds than ever for U.S. investors.



[Global Debt Markets]


Investing in international bonds involves contact to the movements of global currencies. This is the primary component of determining international bond returns.  Alternations in currencies create an extra layer of volatility in these types of securities.

However, that volatility actually enhances diversification benefits.  One of the key considerations of any purchase of international bonds is whether or not to hedge the currency impact.  These deviations create return volatility above the level inherent to the underlying investment. An allocation to an unhedged international bond does reflect an investor’s bearish view of the U.S. dollar.  This is because as the dollar depreciates against a foreign currency, an international bond will gain in value.  The last 25-plus years have witnessed a long-term decline in the U.S. dollar, actually providing a tail wind for international bond investors.


russian bonds

[Russian Bond]


In fact, according to data from Vanguard, unhedged international bonds outperformed hedged bonds by 2.2 percentage points a year since 1987. The diversification benefit from international bonds is also attractive.

For example, from January 1, 1992 to March 31, 2013, the correlation between the Citigroup World Government Bond Index ex-US 1-3 Years index and five-year U.S. Treasury notes was a mere 0.35.  An allocation to international bonds can amplify portfolio diversification across economies, currencies, and yield curves.



[iMBA Inc., in Moscow]




Your thoughts and comments on this ME-P are appreciated. Feel free to review our top-left column, and top-right sidebar materials, links, URLs and related websites, too. Then, subscribe to the ME-P. It is fast, free and secure.


Timothy J. McIntosh is Chief Investment Officer and founder of SIPCO.  As chairman of the firm’s investment committee, he oversees all aspects of major client accounts and serves as lead portfolio manager for the firm’s equity and bond portfolios. Mr. McIntosh was a Professor of Finance at Eckerd College from 1998 to 2008. He is the author of The Bear Market Survival Guide and the The Sector Strategist.  He is featured in publications like the Wall Street Journal, New York Times, USA Today, Investment Advisor, Fortune, MD News, Tampa Doctor’s Life, and The St. Petersburg Times.  He has been recognized as a Five Star Wealth Manager in Texas Monthly magazine; and continuously named as Medical Economics’ “Best Financial Advisors for Physicians since 2004.  And, he is a contributor to SeekingAlpha.com., a premier website of investment opinion. Mr. McIntosh earned a Bachelor of Science Degree in Economics from Florida State University; Master of Business Administration (M.B.A) degree from the University of Sarasota; Master of Public Health Degree (M.P.H) from the University of South Florida and is a CERTIFIED FINANCIAL PLANNER® practitioner. His previous experience includes employment with Blue Cross/Blue Shield of Florida, Enterprise Leasing Company, and the United States Army Military Intelligence.

Speaker: If you need a moderator or speaker for an upcoming event, Dr. David E. Marcinko; MBA – Publisher-in-Chief of the Medical Executive-Post – is available for seminar or speaking engagements. Contact: MarcinkoAdvisors@msn.com


Comprehensive Financial Planning Strategies for Doctors and Advisors: Best Practices from Leading Consultants and Certified Medical Planners(TM)

“Physicians who don’t understand modern risk management, insurance, business and asset protection principles are sitting ducks waiting to be taken advantage of by unscrupulous insurance agents and financial advisors; and even their own prospective employers or partners.

This comprehensive volume from Dr. David Marcinko, and his co-authors, will go a long way toward educating physicians on these critical subjects that were never taught in medical school or residency training.”

Dr. James M. Dahle MD FACEP

[Editor of The White Coat Investor, Salt Lake City, Utah, USA]




Leave a Reply

Please log in using one of these methods to post your comment:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: