Why Global Bonds Make Sense for US Investors

Although US bond yields are well above their lows of the past decade, it’s always a good idea to think globally.

It’s tempting for US investors to focus on their home-field yield advantage and forego opportunities abroad, but we believe that by expanding the fixed-income opportunity set globally, investors can capture much-needed diversification, while still enjoying attractive yields and potential returns. Below are three reasons why we think US investors should embrace the global bond market today.

1. A much bigger opportunity set means more opportunities to add alpha.

Gone are the days when the US fixed-income market dominated the world’s supply of bonds. Today, the US represents less than a third of the global bond universe. And the global bond market is much more diverse than the US bond market. Not only does it offer more opportunities from which an active manager can choose, but its differing landscapes provide significant variety and diversification sources.

Bond returns differ country by country and year to year because of varying economic cycles, monetary cycles, business cycles, inflation regimes, geopolitical concerns and yield curves. Indeed, on a hedged basis, US Treasuries haven’t been a top performer among government bonds in more than a decade (Display). Similarly, sector returns vary across countries and regions. For example, high-yield corporate bonds may look like weak sauce in one region but a major opportunity in another.

No Country Wins All the Time