The Case for International Fixed Income

Wells Capital Management

Tony Norris

Research

7 Pages

Wells Capital Management argues international fixed income remains materially underowned despite representing 56% of the global bond market. The paper explores diversification, currency hedging, and sovereign debt trends, while challenging the assumption that U.S. bonds consistently offer superior risk adjusted returns.

Key Takeaways

Global Market Imbalance: International bonds represented 56% of global fixed income markets in 2014, yet institutional allocations to the asset class averaged below 5% of portfolio fixed income exposure.
Emerging Debt Advantage: Emerging market sovereign debt averaged 42.89% debt to GDP versus 119.64% across developed markets excluding the U.S., while offering 6.07% average 10 year sovereign yields.
Hedging Reduced Volatility: Hedged global government bonds delivered 8.70% annual returns with 3.15% volatility during the strong U.S. dollar period from 1996 through 2002.
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