Whether you recently became interested in international investing or are a seasoned global investor, a quick refresher course on foreign bond investing should help you assess your current strategy and future plans for the fixed income portion of your investment portfolio. Naturally, a bond's price also reflects its particular characteristics, such as credit quality and maturity, and also the supply and demand. There are important differences between domestic and foreign bond investing that can increase overall risk.
Many countries have less political stability and less diverse economies than the United States.
Political or economic upheaval in such a country could jeopardize local bond markets, so the investor must continually monitor and interpret the internal developments of other countries. However, this risk can be greatly reduced by investing in government bonds of developed nations. Initially, dollars must be converted to the local currency to purchase a foreign bond. Subsequently, price quotations, interest, and any sale or redemption proceeds must be converted from that foreign currency back into U.S. dollars. A principal advantage of investing overseas is diversification.