International bond investing can offer two benefits. 1) The possibility of a higher rate of return. 2) The ability to diversity investment risk.
Receiving a higher rate of return on international bonds, versus returns on U.S. bonds, is an opportunity that can definitely benefit retired investors – providing the potential of more stable returns and a hedge against a depreciating U.S. dollar.
Most international bonds are issued as bond funds, which can invest in a foreign government or corporation. Different funds can include a single country or single region. They can be global, which includes U.S. bonds, or foreign, which does not include U.S. bonds. Different sectors may include utilities, government, telecommunications, or a combination of any of these.
What are some other reasons to consider international bond investments? Throughout the world, interest rates can be volatile. For example, when U.S. rates are low, rates in other stable countries may be higher. The same could happen to movements in the stock markets. Therefore, gauging the timing of investing in an international bond is important.
When one purchases international bonds or bond fund shares, they are opting for the potential of higher returns in exchange for accepting some additional risks. Typically, foreign markets are often more volatile than the U.S. markets. As a result, some of these investments’ additional risks are: political risk, economic uncertainties, the fluctuation of the currency exchange market, and political and economic uncertainties. Professional managers can sometimes help mitigate these risks by monitoring international market developments and by adopting strategies to hedge against currency exchange rates. However, the additional time involved in managing these risks will usually result in higher management fees.
Recently, emerging market bonds have become an area of interest when investing in international bond funds. These bonds involve a greater risk but the potential of a greater reward when compared with markets that are much more established. Additional risks may include a country with a relatively smaller size and lesser liquidity, as well as higher inflation rates and adverse political developments. These markets may be ideal when additional obstacles are introduced into a scenario, such as when privatization occurs in formerly communist or socialist countries.
With all this being said, the biggest risk/reward is the change in the invested country’s currency in comparison to the U.S. dollar. Along with monitoring bond rates, one must also keep close tabs of the appreciation or depreciation of the U.S. dollar in order to have a satisfactory investment.

Sources:
http://online.wsj.com/home-page
http://www.ft.com/home/us
http://fisher.osu.edu/fin/fdf/osudata.htm