International Bond Funds

International bond funds are becoming more popular as rates of return have diminished in the United States. Read our reviews and see which funds are offering the highest yields now.

Are International Bond Funds a Good Investment?

As the dollar weakened steadily throughout the early- to mid-2000s, many investors started looking overseas for safe investments with better potential yields. But because the international bond market is so massive and complex, getting involved in foreign investments is far too complicated for the average individual investor. That’s where international bond funds come in. These are specialized funds devoted to researching and investing in the best funds from around the world. When you invest in one, they do the research and thinking for you. If you find a good one to invest in, it can potentially become a highly lucrative investment. However, there are downsides—especially when it comes to international bond funds that use shady tactics or buy junk bonds.

To make sure you don’t get into trouble with international bond funds, here are some things to keep in mind:

Quality of bonds

When considering investing in a specific fund, the first thing to look at is where they have their investments. It’s no secret that there are some national economies that are far more stable than others. And let’s not forget that these dynamics can often be quite surprising. Who could have predicted that the Greek debt crisis was going to bring the European economy—and by extension the world economy—to the brink of severe collapse? Things like this come out of nowhere. Until recently the Greek economy was in good standing, and there were many international bond funds with investments in Greek bonds, which now turns out to be a big mistake.

Clearly, there are some countries whose bonds can be considered more stable than others. As we all know, U.S. bonds are good investments even when the interest rates aren’t so high. That’s because we have an economic system that is built to weather volatility and rebuild itself after the downtimes. There are many other countries with similarly robust economies, including most Western European countries (excluding the southern ones), as well as the economic powerhouses of East Asia. Elsewhere, investors take on risk.

Government bonds vs. corporate bonds

Of course, investing in international corporations is a whole different matter entirely. We’re relatively comfortable buying bonds with domestic companies because they operate under our regulations and are relatively transparent to us. When it comes to bonds from overseas companies, things aren’t so simple. There are different regulations that govern different nations and international bodies, and what may seem like a great deal to us in this country may take completely different forms in other countries.

Thus, when you’re investing in international bond funds, it’s important to take a close look at the corporate investments of the funds you’re considering. Try to do a little research on your own. Do some investigation into the companies that a given fund tends to invest in, and evaluate on your own whether those companies are sound investments. If everything looks strong and stable, then you  might have found a fund to consider investing in.