Instead of shifting down fixed-income assets as a hedge against rising rates from a three decade low, investors can consider foreign bond exchange traded funds that are less affected by U.S. rate risks.
“High-quality international bonds offer a simple way to buffer a bond portfolio from rising interest rates,” Chris Philips, a senior analyst in Vanguard’s Investment Strategy Group, said in an InvestmentNews article.
Rising rates have pushed down bond prices – bonds have an inverse relationship to rates. As a way to hedge against rising rates, bond investors have been taking on greater credit risk, or shifting away from high-quality debt for speculative grade debt with higher yields. Investors have essentially bet on the higher yields to cushion the potential shortfall. [Big Bond ETF Faces Critical Test]
International rates are “imperfectly correlated” and don’t rise at the same pace. So over the short-term, international bonds can provide a smoother ride and increased returns, Philips said. [BlackRock: Duration Customization]