How to Buy Foreign Government Bonds
If you really want to diversify your investment portfolio, investing in foreign government bonds is one way to go. When the U.S. economy is slowing down or when the dollar has less value than foreign currencies it's a good time to buy foreign bonds. Sometimes foreign bonds and foreign bond funds outperform U.S. bonds and bond funds and there is another opportunity to add value to your portfolio. Smart investors consider foreign bonds to be protection against a falling U.S. dollar. However, instability in international currency or governments brings high risk to these bonds.
- Difficulty:
- Moderately Easy
Instructions
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Invest in Foreign Governments
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1
Decide how much you have to invest. There is usually a minimum of 10,000 face-value units of whatever the country's currency is in order to buy. But that can be substantially less than $10,000, so foreign bonds may be accessible to small investors.
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2
Ask your broker whether she offers foreign bonds, even if they are in the form of mutual funds. This a very easy way to invest in international bonds. To minimize your risk, buy high quality funds and hold them for the long term.
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3
Pay less in commissions and markups when you buy your bond in the country it comes from and in its own currency.
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4
Get higher interest rates when buying directly from that country's government. Most governments do not sell directly to the public like the U.S Treasury does. Still, the fewer markups or commissions you pay, the better.
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5
Check with major discount brokers, such as Schwab (see Resources below) to buy foreign bonds. If you want a specialist in international investments, avoid larger brokers that offer a multitude of products. There are some investment firms that specialize in the global market.
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6
Purchase foreign bonds with U.S. currency from a website such as Everbank (see Resources below). You don't need a foreign account there.
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7
Learn all you can about a potential investment country's government. Without political stability, the government has a greater chance of defaulting on the bond.
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Tips & Warnings
Be careful of currency risk. This is the risk that a change in the exchange rate between the dollar and the currency your bond is issued in could lower your return.
