Emerging Market Bonds And Foreign Government Bonds

If you are looking to diversify your portfolio and get relatively higher fixed income from bonds

, you could go with emerging market bonds and foreign government bonds. Right now, emerging market bonds are one of the best-performing investments in the international fixed-income industry, yielding around 6.2%/ Experts believe that these types of investments will appreciate if the dollar continues its decline (and currencies from emerging markets appreciate in value. These bonds help you reap the benefits of appreciating currency while giving you bigger yields. Debts from emerging markets are predicted to fare better than other global debts, despite the added risk bondholders take, including currency risk, rate risk, and the risk of government instability.

The risks of investing in this asset class are much more considerable. However, investors with a good tolerance for risk will find that bonds from emerging markets can generate income over the long-term, with volatility that is not as much of a concern due to the solid growth potential and structuring of these bonds.

Average debt from emerging countries is about a third of the GDP or Gross Domestic Product, compared to a hundred percent for developed countries. The GDP is also predicted to increase yearly by more than 5% for developing nations, as opposed to below 2% for developed countries. In addition, the allocation of funds from institutions help the profit potential of these bonds which is the shortage of equity from emerging markets will produce benefits for investors when more funds come in.

Investors are not as attracted to foreign government bonds because of the national debt problems in Greece and other developed nations. These financial crises have definitely put investors on the fence, holding back buying into these securities. However, hiring an experienced financial professional such as a mutual fund expert that focuses on fixed-income securities can give you far better returns compared to similar investments in the US. For instance, Australian government bonds that span one year recently generated profits of nearly 5%, compared to the underperforming one-year bills from the US with less than 0.3% yields.

CDs or Certificates of Deposit and Treasuries are no longer the ramparts of retirement income that they used to be. These investments used to be stable, but current global conditions and the need for bigger returns turned these into sub-par sources of income. If you want to increase your earnings in or before retirement with fixed-income investments, try going global and purchasing emerging market bonds and foreign government bonds.

by: Katherine Smith

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