Going Global With Bonds: The Benefits of A More Global Fixed Income Allocation

Vanguard

Todd Schlanger

Research

16 Pages

Vanguard examines how hedged global bonds can reduce portfolio volatility without sacrificing returns, arguing fixed income diversification matters more than many investors assume. Across five markets, hedged global bonds consistently showed lower volatility, while unhedged exposure introduced materially higher currency driven risk and return dispersion.

Key Takeaways

Volatility Reduction Evidence: From 1988 through 2017, hedged global bonds produced lower annualized volatility than local bonds across all 5 markets analyzed.
Massive Opportunity Set: The global investment grade bond market totaled $48 trillion in 2017, highlighting how domestic only allocations can materially narrow diversification exposure.
Interest Rate Diversification: During rising rate periods, hedged global bonds outperformed local bonds by a median 1.84% in the U.K. and 1.64% in Australia.
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