Reply #56: foreign bonds

[enid602]

I put most of my foreign bond money into T Rowe Price's foreign bond index. They invest 85% of the fund into non-US, developed world (Euro, Canadian $, Yen, Australian $, Singapore $, etc) AAA-rated corporate and sovereign bonds. It's just been holding steady the past two months; the euro has depreciated from $1.39 to $1.28 temporarily, due to the European and Japan's central banks trying to save the dollar. This decrease has been offset by the fact that foreign bonds (ironically) pay higher interest than their US counterparts.
I think the dollar's in trouble over the next 2 to 3 years, however, and foreign currency appreciation plus some nice interest could make for a pretty sweet yield. Remember, I'm still 60% invested in US bond and stock mutual funds, so if the dollar appreciates over the long term, I'm covered.
I also invested a small portion of my foreign bond $$ in Mainstay's high income foreign bond, which invests in more risky Latin American and developing world bonds. This investment decision was based on conscience, as I especially approve of what Lula and Kirchner are doing in South America. Remember, Latin America's traditionally crushing foreign debt is denominated in dollars, and when the dollar goes down, they win big time. Most Latin countries' central banks have already diversified their reserves out of dollars, so it's cheaper for them to make debt payments. Furthermore, Brazil and Argentina's massive agricultural sectors put them in a good position to sell beef to the Chinese, who have plenty of money to buy from South America. Nice to know where are dollars are going.