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The Short Answer

What a Rate Hike Here Could Mean for Foreign Bonds

We delve into how foreign-bond funds performed in previous rising-rate environments and find some surprising results.

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Question: I've heard the Federal Reserve might raise interest rates soon. I know that's supposed to be bad for my U.S. bond funds, but would it hurt my international-bond funds as well?

Answer: After years of hand-wringing over when the Fed will end its accommodative interest-rate policy, investors seem to be coming to grips with the fact that the end may finally be near. Expectations that the Fed could raise rates as early as this June have added to recent U.S. stock market volatility. But bond investors have been focused on when a rate hike might occur almost from the time rates dropped to near 0% during the 2008-09 financial crisis.

Adam Zoll does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.