“According to Vanguard, foreign currency accounts for two-thirds of the volatility investors experience when buying international bonds. As such, in an effort to isolate the credit and interest rate risk, BNDX employs currency hedging. As the bond index rebalances at the end of each month, Vanguard rolls forward one-month foreign exchange derivatives to offset any moves in the various currencies,” said S&P Capital IQ, which rates BNDX overweight. [An Excellent Year for This Bond ETF]
Intraday liquidity offered by bond ETFs is another advantage compared to one-price-per-day mutual funds.
“Investors have long been aware that mutual fund buy/sell orders are executed at the end of the trading day on which they are entered. However, changes to Federal Reserve policies or other market developments, could warrant a need for more timely execution of trades, even for long-term ETF investors. The yield on the 10-year Treasury bond unexpectedly rose 13 basis points to 2.24% on March 6, for example, but mutual fund investors had to wait to the closing bell to have their trades executed,” notes S&P Capital IQ.
Vanguard Total International Bond ETF