Consistency and balance are often essential qualities for a strong portfolio. In the fixed income space, investors can look to the S&P International Corporate Bond Index to bolster the stability and diversity of their investments through exposure to investment grade corporate debt outside the United States.
International corporate bonds are issued in a variety of non-U.S. dollar currencies, which helps mitigate U.S. dollar risk. In an environment where the U.S. dollar is weakening, having a basket of non-U.S. dollar securities tends to add to total return after currency translation. Beyond that, international bonds have demonstrated a relatively low correlation with the domestic and global equity marketplace, as well as with fixed income. Diversifying with international corporate bonds can potentially reduce exposure to market variations of a single currency, issuer, and asset class.
When comparing the S&P International Corporate Bond Index to indices of different asset classes and even similar indices within the same asset class we can find additional reasons to take interest in international bonds. Historically, the S&P International Corporate Bond Index has demonstrated relatively lower volatility than equity and commodity indices such as the S&P 500® and the S&P GSCI®. In addition, as of November 30th, the average rating quality of the S&P International Bond Index outranks that of the S&P U.S. Issued Investment Grade Corporate Bond Index with average weighted ratings of A/A- and A-/BBB+, respectively. While high quality ratings often imply lower yields, the S&P International Corporate Bond Index has a weighted average yield-to-worst of 2.16%, which is higher than the average yields of U.S. treasuries and comparable to the 2.26% yield of the S&P 500 AAA Investment Corporate Bond Index. In all, international corporate bonds can be a dependable and important part of an investor’s portfolio.