Global fixed income Considerations for U.S. investors.pdfVIP

Global fixed income: Considerations for U.S. investors Vanguard research February 2014 • Bonds issued in currencies other than the U.S. dollar constitute more than half of the taxable bond market, yet U.S. investors generally have Authors little, if any, exposure to foreign bonds in their portfolios. Christopher B. Philips, CFA Joseph Davis, Ph.D. • For the average investor seeking to further mitigate volatility in a Andrew J. Patterson, CFA diversified portfolio, this paper finds that foreign bonds can play Charles J. Thomas, CFA such a role. • For investors looking to add exposure to foreign bonds, we show the substantial benefits of hedging the impact of foreign exchange movements. • Although no one optimal allocation fits all portfolios, U.S. investors considering international bonds should balance the diversification benefits against both the costs involved and the inherent benefits of preserving a core allocation to the U.S. bond market. Note: This paper is an updated version of one originally published in 2006 by the same authors and titled International Equity: Considerations and Recommendations; the paper was also updated in 2009, 2011, and 2012. Connect with Vanguard International bonds can be defined as debt issuance abroad, primarily by governments. The net securities issued by non-U.S. governments and result, in terms of the global investable market (global corporations.1 Although these securities have equities and fixed income), has been a near doubling always represen