Like most asset classes, global bonds have seen very little action over the past few months. The Vanguard Total International Bond ETF (NASDAQ:BNDX) is virtually unchanged since I wrote "BNDX: Another Wave Lower In Global Bonds Is Likely" three months ago; this may be the calm before the storm.
The economic situation has changed a bit over the past three months. Back then, markets were still recovering from the March shock. Today, they are assessing if yet another might take place. There has been an economic recovery, but there seems to be a plateau that will leave the global GDP a few points below its pre-COVID-19 level. Stocks, particularly those in Europe, have been flat for months and are showing generally bearish signals. This bearish case is detailed in the article "Vanguard FTSE Developed Markets ETF: If You're Looking Abroad, Look Elsewhere" regarding the developed market ETF (VEA).
Normally, a bearish outlook for equities is bullish for bonds. This has been a major reason investors have been buying long-term bonds over the past few years and, in doing so, have pushed yields below 1%. Funds like BNDX have offered essentially no returns from dividends but relatively strong returns from principal appreciation. However, with virtually no yield, investors may regret buying these bonds.
An Updated Look at BNDX's Holdings
BNDX owns bonds from countries outside of the United States. About 59% of its holdings come from Europe, 24% from the Pacific, and the rest from other countries. Importantly, the bond uses U.S-dollar hedging, which limits its risk to a rise in the U.S dollar exchange rates (the SPDR Bloomberg Barclays International Treasury Bond ETF (BWX) is similar but without this attribute).
All of these bonds are investment grade, with credit ratings ranging from AAA to BBB and roughly 1/4th of the fund
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