Global Recession Fears Put International Bond Exposure Into Perspective

Global recession fears are reinvigorating the bond markets, and it’s not relegated to just safe haven U.S. Treasury notes. Bonds from all around are seeing prices start to rise as yields start to soften.

The U.S. Federal Reserve hiked rates another 75 basis points most recently, but talk of continued rate hikes could be dwindling as recession fears loom. Tightening of monetary policy could be reaching a zenith if inflation data shows signs of subsiding.

Around the world, government borrowing costs are starting to fall, which can conversely translate to higher bond prices.

“Government borrowing costs from Germany to France and Australia are down sharply this month, with 10-year bond yields down around 50 basis points each in July and set for their biggest monthly falls in at least a decade,” Reuters reported. “U.S. 10-year Treasury yields have slid some 80 basis points from 11-year highs hit in June as decades-high inflation fueled expectations for aggressive Federal Reserve interest rate hikes.”

Bonds were following stocks for the first half of 2022, but the former is slowly returning to form as a safe haven asset. As the Reuters article mentioned, inflows are starting to pick up momentum into bond funds again.

“The tide has indeed turned, bonds are back to behaving like recession hedges,” said ING senior rates strategist Antoine Bouvet.

Getting Global Bond Exposure

For core bond exposure with an international tilt, consider the Vanguard Total International Bond Index Fund ETF Shares (BNDX). That global exposure comes at a low cost with a 0.06% expense ratio.

BNDX seeks to track the performance of a benchmark index that measures the investment return of non-U.S. dollar-denominated investment-grade bonds. International bonds can provide a diversification tool for fixed income investors looking to supplement their current core portfolios.

The ETF employs an indexing investment approach designed to track the performance of the Bloomberg Global Aggregate ex-USD Float Adjusted RIC Capped Index (USD Hedged), which provides a broad-based measure of the global, investment-grade, fixed-rate debt markets.

Summarily, BNDX:

  1. Attempts to track the performance of the Bloomberg Global Aggregate ex-USD Float Adjusted RIC Capped Index (USD Hedged).
  2. Employs hedging strategies to protect against uncertainty in exchange rates.
  3. Provides a convenient way to get broad exposure to non-U.S. dollar denominated investment-grade bonds.
  4. Is passively managed, using index sampling.

For more news, information, and strategy, visit the Fixed Income Channel.