Bond Funds

Petko Bahovski

In this chapter we look at bond funds. We start with money-market funds. This is a very simple and straightforward instrument, which in a low- to negative-interest-rate environment has shown some concerns in terms of how they work and how sustainable they may be if rates stay close to around zero. How will money-market funds make money if rates are negative?

Then we move on to classic bond funds, which give the basis for all other bond funds. Depending on the investor’s perspective, there may be some overlap with funds discussed later. For instance, a Japanese yen government bond fund is considered a classic bond fund by a Japanese investor; however, it may be perceived by a British investor as a country-specific bond fund carrying additional foreign-exchange and geographic risk.

Country- or region-specific bond funds, as the name implies, give you exposure to certain geographies, investing predominantly in government bonds and some high-quality corporate or quasi-sovereign bonds.

Global bond funds should give you a broader world diversification, that have a wider investment spectrum than country-or region-specific bond funds. Besides having wider geographical exposure