What is an International Bond?
International bonds are debt securities issued by foreign companies or governments and sold domestically.
How Does an International Bond Work?
Foreign companies or governments may issue bonds that are securitized and sold to domestic investors in the form of international bonds. These bonds are typically denominated and pay interest in the currency of the issuing country. Therefore, the value of the bond in the domestic currency will fluctuate depending on the economic conditions and exchange rates between the domestic country and foreign country.
Why Does an International Bond Matter?
International bonds can be used to hedge against currency and country-specific risks. For example, Americans invested in international bonds have reaped the gains from a falling U.S. dollar in recent years as it has made interest payments from foreign bonds worth more in dollar terms.