A global bond is a bond that can be purchased and sold both within the country where it is issued and the European markets. This bond is traded outside the country where the currency of the bond is denominated. These bonds are high in credit ratings and are traded by a non-European country in any European or foreign country. The maturities for global bonds range from one to thirty years. Large multinational corporations or sovereign entities issue these bonds.
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Global Bonds are considered a safe mode of international investing. This is because they are registered with the Securities and Exchange Commission. Besides, credit ratings are allotted to global bonds by S&P and Moody’s Investor Service.
FGBFX invests in corporate bonds issued across the globe. Around 80% of the fund's assets are in debt securities of all categories. FGBFX’s top five allocation weightings by country (as of Nov. 30, 2020) are as mentioned below:
The Templeton Global Bond Fund invests over 80% of assets in governmental and agency bonds around the world. The portfolio managers of Franklin Templeton Investments have an eye for investment opportunities across currencies and interest rates for reasonable returns.
It is to be noted that funds with higher expense ratios can cut performance over time. The Templeton Global Bond Fund has an average weighted maturity of 2.42 years. The top five allocation weightings by nation (as on 30 November 2020) are given below:
PIGLX invests in high-quality, developed countries around the world.
The fund aims to provide exposure to multiple economies, including developing countries denominated in global currencies. The top five allocation weightings by country (as of Nov. 30, 2020) are as mentioned below:
The fund invests in fixed-income securities from developed and emerging markets. The weightage is as follows:
DFA 5-Year Global Fixed Income Fund invests in the US and foreign debt securities with maturities of not more than five years. The percentage-wise weightage of DFGBX is:
Global Bonds can be divided into two groups:
Multinational corporations and governments from developed countries issue bonds with a different range of maturities and credit values. Most of the bonds are denominated in the currencies of the country of their origin. On the other hand, emerging market bonds are issued by the sovereign government only. Emerging market bonds are mostly dollar-denominated and offer higher interest rates. When these bonds are issued by countries that have unstable economic growth, they are considered riskier by the investors.
Both these two categories of global bonds are issued when both the corporations and the corporations aim to raise capital through the issuance of global bonds.
Though investing in global bonds can help you earn interest income in multiple currencies. However, a second thought before purchasing global bonds is necessary, keeping in view the risks associated with this plan. First, it is a bit difficult for a Japanese investor sitting in Japan with the idea of buying, say, a Canadian bond since a native of a country better understands the financial condition of his country than a foreigner does. So, this can be a big challenge. Second, we are living in an age where international sanctions, wars, recession are quite common. If such things happen, then the investor who has purchased bonds from a country where fresh sanctions have been imposed due to some reason might bear economic losses on this account.
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Investing in global bonds can also pose you with an unforeseeable risk. If the bonds go into default, then the path for the investor who is also a foreigner becomes more difficult to recover his losses. Whereas, if the investor purchases bonds issued in his own home country, he has specific legal recourse in the event of default. Therefore, one should invest in Global bonds only after careful analysis on the same. This includes a study about the trading entity involved in the issuance of the bonds, its credit rating by different agencies, fluctuations in the market, the country's economic situation to which the issuer of the bonds belongs, and the legal options available if the bonds go into default.
In the wake of the Coronavirus pandemic, it is highly expected that there will be an elevation in the market volatility. Thus, it would be a wise decision to treat fixed income allocation as “equities light.” According to data compiled by Bloomberg, Bonds from UK and Austrian issuers were some of the biggest losers this year, with Austrian notes losing more than 3%.
Other than the US, global bonds are also issued by the other governments and corporations of Canada, England, France, Italy, Germany, Sweden, Japan, Switzerland, and many other countries. The main currencies in which these bonds are traded are - Yen, US dollar, Euro and Pound Sterling.