Swiss govt bonds promise to pay you X CHF in interest and principal. Nestle shares are listed in CHF but represent a claim on profits from a business w/ 5% of sales in Switzerland. Extreme example but foreign company stocks and bonds denominated in foreign currencies are different animals when it comes to FX rates. There is some differential FX exposure between shares of foreign big caps and US big caps (listed in $'s but w/ typically lots of non-$ profit sources), and probably more between small cap US and small cap foreign stocks (since smaller companies as a general rule do a higher % of business in their own country or currency zone). But neither can be compared to the FX difference in a straight up promise to pay a nominal number of $'s vs a nominal numbers of foreign currency units.I wonder though if you already have international equity, you probably don't need foriegn bonds, but they won't hurt either. I don't know what would happen if the US tanks if this mean all of the other countries will fall.Right. Making the straightforward assumption (no guarantee) a serious US federal debt crisis would sharply lower the value of the USD v other Developed Market currencies, much of the diversification effect of having bought those foreign bonds would be lost via the FX hedges. To really diversify away from US, it must be something that also gains USD value if the USD crashes in value v other currencies IMO. Among other aspects where a foreign asset could actually turn out connected back to the US in very bad situations. Some people conclude there is no investment which wouldn't tank if the US really tanked though I don't agree with that. Non-FX hedged DM bonds wouldn't necessarily, but FX risk in the (presumed) much more likely case of muddling along is a real issue. There are a few non-FX hedged DM bond funds, not at Vanguard.
IOW FX and stocks is complicated, FX and nominal bonds less so. If the USD crashes in value, first order effect on high quality foreign currency bonds is big increase in USD value. That's less clear for foreign stocks. As to whether such a scenario is plausible (enough to do anything about) there's some room for debate IMO. But saying Switzerland (37% debt to GDP) would have to default if the US ever did is clearly silly. The plausible argument in this regard is that the chance of a US default (or highly unstable market conditions based on fear of one) remains too unlikely to consider in investment planning. I no longer agree with that though a) I don't think it's outright likely either, b) I recognize that diversifying significantly* away from US govt debt as the 'riskless' component is not easy.
*an FDIC/NCUA insured CD is a *little* bit diversified, since while the normal scenario is bank/CU fails govt pays, the bank/CU is not released from its obligation to you by a US govt default. And the blanket statement 'a ('real') federal default would be preceded or immediately followed by a failure of all US financial institutions' while not as preposterous as the same statement is wrt all foreign govts IMO, is still questionable. Russia defaulted on own currency domestic debt in 1996 and took measures so no major bank failed on its deposits.
Statistics: Posted by JackoC — Wed Jul 10, 2024 10:31 am — Replies 13 — Views 754