International bonds are bonds that bonds that are issued in a country by a non-domestic entity. These bonds are very attractive to many investors because enable them to diversify their portfolio. Investing in international bonds has become quite popular and it is currently very common. International bonds tend to be hard to purchase. It’s hard to find a broker and if at all possible there is a commission charge, however there are a number of ways in which an individual can buy these bonds. They can be purchased in a traditional mutual fund or on a close-end fund. These bonds can be issued privately or through the Government. Privately purchased bonds are called international corporate bonds.

Although investing in international bonds is attractive it also has its drawbacks. There are critical issues that commonly arise. “Many factors are the same as for U.S. bonds: interest rate levels, credit market conditions, actual and expected inflation, and the pace of economic growth, just to name a few.” (Mutual fund investors center) For example, foreign investors tend to assume no risk when buying U.S. securities, however there is no guarantee that there will be any value. Currency may devalue over time and there isn’t any protection that the bond or security will be of little value of even worthless. A lot of countries tend to have this issue and this serves as a warning to an amature investor before starting to invest before researching history.

Investing in international bonds involves many aspects. One important thing is to be informed about hedging. “With international bonds, the most important question to ask is whether the fund hedges against currency risk.” (The motley fool) International bonds can fall for a number of reasons. Foreign bonds value can rise and fall in values as interest rates change. Once the rate changes, you can either be successful or lose money. Another important thing is that international bonds that are denominated in a foreign currency and changes in the exchange rate can devalue the bond greatly. However, if an individual wants to diversify their portfolio with international bonds then there is a lot of great opportunities. If one can be willing to take a risk and be aware of the drawbacks then they can have a great opportunity to take advantage of aspects that a purely domestic investors doesn’t have. They can have the chance to profit from favorable interest rates and be able to take advantage of favorable conditions in different markets.

References:

· http://www.mfea.com/NewsCommentary/FundFocus/BondFunds/TRowePrice.asp

· http://www.fool.com/investing/international/2007/01/03/going-global-with-bonds.aspx

· http://www.investinginbonds.com/