Purchasing High Yielding Foreign Bonds

The wavering U.S. dollar has some investors thinking about putting their dollars elsewhere. Foreign bonds are very attractive since they high yielding bond in comparison to U.S. bonds and bond funds. If you do choose this route beware of the risks that come with the benefits.

Acquiring Foreign Bonds and Bond Funds:

Investment firms & traders that specialize in global exchanges: Look for firms registered with FINRA, an independent self-regulatory organization charged with regulating the securities industry endorsed by the U.S. Securities & Exchange Commission. They have a BrokerCheck search to find FINRA-registered firms. Or you can go with more established investment banks like J.P. Morgan which offers global FX market services and its MorganMarket global research. They may hit you with lots of fees and commissions, but it will save you the trouble of doing the hard work yourself.

The country’s treasury or national bank website: Buying directly from a nation’s treasury means higher interest rates and less fees. For example, Australia’s government sells its bonds through the Reserve Bank of America (RBA). You must fill out a Purchase Form, Identification Reference Form, and send your payment by mail to the Registry for Commonwealth Government Inscribed Stock at the Reserve Bank in Sydney or Canberra. Further information on bank fees, prices, and required amounts can be found at the RBA’s website. However, most countries dont sell bonds directly to the public, but they may list local brokerages that do.

Certain banks: Some banks offer foreign currency accounts. They have some minimum investment requirements. Everbank, for instance, has WorldCurrency account that allow you to open an account with a variety of currency options. It is FDIC insured and has no monthly account fee. They offer foreign investment services as well.

Typically, acquiring foreign debts require a minimum investment amount. This may be anywhere from 10,000 to 100,000 units in the foreign country’s currency. Some popular countries to invest in are Japan, Australia, China, and any in Western Europe because of their growth and/or stability. Before choosing a country it is important to assess risks of putting your money into the foreign market.

Risks with Foreign Debt Dealings:

  • Currency risk:  How stable is the country’s currency? A change in the exchange rate between the U.S. dollar and the currency of your issued bond may lower your return.
  • No protection: An advantage to buying U.S. bonds is that there is legal backing to protect your investments. There is a chance for default or non-exchange to U.S. currency– this is  not for the faint at heart.
  • Political Impact: You must research the political atmosphere of countries you are considering thoroughly. Political instability means a higher chance of a country defaulting. There has been an increase in protectionism across the globe, and this is not good for foreign debts and investments. These countries want to keep their money at home.