Investing in international bonds seems like a wise idea for many.  It has taken off over the past several years since the dollar has been imploding, and investors are looking into more sound investments.  International bonds invest over 40% of their funds into foreign bonds which consist of investment grade bonds in politically sound and stable economies, as opposed to emerging economies.  Throughout the years, the international debt market has held stable what would be otherwise risky investment funds.  International bonds are an excellent way to diversify a portfolio.  They can focus on bonds in other countries or in different stock markets, as well as currencies.  International bond markets can also help multinational corporations get a lower interest rate than they could get by going to a local bank. International bonds also come in a variety of shapes and sizes.  The bonds of foreign countries are very similar to those of the United States, in that they pay interest in regular intervals or coupon payments and pay the principal back.  There are also international bonds that exist in US dollars to help emerging countries.  These bonds are called Brady Bonds.  They are to help those developing countries in a way to manage their international debt in a more efficient manner by merging their obligation to a foreign government while getting the backing of the United States treasury bonds as a way to guarantee the payment of principal and interest.  Private corporations also sell bonds in addition to those sold by the governments of countries.            The biggest question faced by investors is if the fund hedges against the currency risk.  Foreign bonds do rise and fall with the interest rate.  Also, the exchange rate can have a large effect on the bond market.   While some bond funds choose to hedge against the currency risk, others don’t, which follows the risk return trade off.           http://www.fool.com/investing/international/2007/01/03/going-global-with-bonds.aspx http://seekingalpha.com/article/57603-investing-in-international-bond-funds International Financial Management By Jeff Madura