One way to diversify your portfolio is by owning some international sovereign debt. International bond exchange traded funds (ETFs) may provide a steady income stream at a less risk when compared to other investment vehicles.

International bond ETFs help diversify a portfolio and provide exposure to non-U.S. Government Treasury bonds by tracking indexes with a set maturity taken from the average of the various bond maturity dates, as stated by Seeking Alpha. International bond ETF distributions are not exempt from state and local taxes. Investors should also note that emerging market bond ETFs are riskier than developed market bond ETFs, but the risk comes with higher yields. (Diversify with International bond ETFs).

  • SPDR Barclays Capital International Treasury Bond ETF (NYSEArca: BWX): up 9.6% year-to-date; yield is 1%; expense ratio is 0.5%; holds some emerging market bonds.
  • iShares S&P/Citi International Treasury Bond ETF (NYSEArca: IGOV): up 3.4% in the last three months; expense ratio is 0.35%
  • iShares JPMorgan USD Emerging Markets Bond ETF (NYSEArca: EMB): up 15.3% year-to-date; yield is 5.7%; expense ratio is 0.6%
  • PowerShares Emerging Markets Sovereign Debt Fund (NYSEArca: PCY): up 36.1% year-to-date; yield is 6.29%; expense ratio is 0.5%

In general, bonds are considered safer than stocks; however, bonds generate lower long-term returns compared to stocks. The price of bond ETFs is inversely related to projected interest rates.

International TIPS, or Treasury Inflation-Protected Securities, pay interest equal to the country’s consumer price index along with a premium. This bond type tends to outperform normal bonds when inflation is projected to rise but underperforms during times of deflation.

  • SPDR DB International Government Inflation-Protected Bond ETF (NYSEArca: WIP): up 20.6% year-to-date; 1% yield; expense ratio is 0.5%

Bond investors may also invest in short-term International bond ETFs, which can be used as an alternative to money market funds. Short-term bond ETFs pay lower yields than their long-term counterparts, with the exception of periods of an inverted yield curve – a widely held indicator of a pending recession.

  • SPDR Barclays Cap Short-Term International Treasury Bond ETF (NYSEArca: BWZ): up 3.8% in the last three months; expense ratio is 0.35%
  • iShares S&P/Citi 1-3 Year International Treasury Bond ETF (NYSEArca: ISHG): up 3.2% in the last three months; expense ratio is 0.35%

For more information on international bonds, visit our international Treasury bonds category.

Max Chen contributed to this article.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.