Global recession fears put international bond exposure in perspective


Global recession fears are reinvigorating bond markets, and they aren’t relegated to just US Treasuries. Bonds everywhere are seeing prices begin to rise as yields begin to fall.

The US Federal Reserve raised rates an additional 75 basis points recently, but talk of further rate hikes may diminish as recession fears loom. Monetary policy tightening could come to a head if inflation data shows signs of slowing.

Around the world, government borrowing costs are starting to fall, which can conversely translate into rising bond prices.

“Government borrowing costs from Germany to France and Australia have fallen sharply this month, with 10-year bond yields down around 50 basis points each in July and forecast for their biggest monthly declines in at least a decade,” Reuters reported. “10-year U.S. Treasury yields fell some 80 basis points from 11-year highs reached in June as decades-high inflation fueled expectations of aggressive government rate hikes. interest of the Federal Reserve.”

Bonds followed equities in the first half of 2022, but the former is slowly coming back to become a safe-haven asset. As the Reuters article mentioned, inflows are starting to pick up momentum in bond funds.

“The tide has indeed turned, bonds are once again behaving as hedges against the recession,” said Antoine Bouvet, senior rates strategist at ING.

Get exposure to global bonds

For a basic bond exposure with an international focus, considerVanguard Total International Bond Index Fund ETF Equity (BNDX). This global exposure has a low cost with an expense ratio of 0.06%.

BNDX seeks to track the performance of a benchmark index that measures investment performance of non-US dollar denominated high quality bonds. International bonds can be a diversification tool for bond investors looking to supplement their current core portfolios.

The ETF uses an index investing approach designed to track the performance of the Bloomberg Global Aggregate ex-USD Float Adjusted RIC Capped Index (USD Hedged) Index, which provides an aggregate measure of the global fixed rate debt markets of investment grade. .

In summary, BNDX:

  1. Attempts to replicate the performance of the Bloomberg Global Aggregate ex-USD Float Adjusted RIC Capped Index (USD Hedged).
  2. Employs hedging strategies to protect against currency exchange rate uncertainty.
  3. Provides a convenient way to gain broad exposure to high quality non-US dollar denominated bonds.
  4. Is passively managed, using index sampling.

For more news, insights and strategy, visit the Fixed income channel.


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