Tariff turmoil and trade tensions are fueling market volatility and raising new doubts about the US dollar and US Treasuries as safe-haven assets. We believe bond investors looking to stem tariff-driven portfolio volatility may find compelling opportunities—and higher income potential—outside the US.
Investor concerns about US exceptionalism aren’t new—but they’re mounting. Confusing tariff announcements, contentious trade talks, rising protectionism and the threat of new taxes on foreign investors are adding to market uncertainty. At the same time, the recent US credit downgrade, a weakening dollar and proposals to extend deficit-expanding tax cuts are prompting fresh scrutiny of US creditworthiness.
In our view, one antidote to this uncertainty may be to shift from a US-only bond strategy to a hedged global fixed-income strategy.
The Benefits of a Larger Opportunity Set
Going global dramatically expands the opportunity set. While the US bond market is the world’s largest, it constitutes just 40% of the global bond universe. By shifting to a global strategy, investors gain access not only to a broader range of issuers, credit profiles and yield curves across regions and sectors but also to a wider mix of credit sectors—including sovereign and corporate bonds, investment grade and high yield, and securitized assets such as residential and commercial mortgages.
This expansion goes beyond mere scale. Different countries operate under distinct economic, monetary and inflation regimes—offering uncorrelated return streams and alternative sources of income and risk. These differences can improve diversification and help investors better navigate shifting market conditions.
For active managers, this broader landscape often offers not just different but better opportunities to generate income and excess return. Regional differences in inflation, growth and policy cycles can lead to diverse market dynamics—and in many cases, more attractive valuations or higher hedged yields than those available in the US. This added flexibility gives active managers more levers to pull in pursuit of alpha.
Hedged Global Bonds: Historically Higher Returns, Lower Risk
One of the biggest challenges facing US investors is how to reduce volatility without sacrificing return potential. This is where global bonds hedged to the US dollar can shine. Over the past four decades, hedged global bonds have captured 86% of the gains from US bond-market rallies. But when US bonds sold off, hedged global bonds experienced just 65% of that downside (Display).
