How to Buy Bonds in Other Countries (2024)

FAQs

How to Buy Bonds in Other Countries? ›

Depending on your brokerage's capabilities and access to international debt markets, you may be able to purchase foreign bonds much the same way as domestic ones. International bond mutual funds and ETFs are also available to trade.

Depending on your brokerage's capabilities and access to international debt markets, you may be able to purchase foreign bonds much the same way as domestic ones. International bond mutual funds and ETFs are also available to trade.

While U.S. investment securities are regulated by U.S. law, there are no specific provisions that forbid individuals who are not citizens of the U.S. from participating in the U.S. stock market.

Unfortunately, as a European citizen, you are not eligible to participate in TreasuryDirect.gov. Thus, your options are limited to purchasing bonds on the secondary market or through bond exchange-traded funds (ETFs).

Nevertheless, there are still some unique risks of owning foreign bonds. Because investing in foreign bonds involves multiple risks, foreign bonds typically have higher yields than domestic bonds. Foreign bonds carry interest rate risk. When interest rates rise, the market price or resale value of a bond falls.

Starting Feb. 13, investors in the U.S. will be able to purchase the Mexican bonds in denominations of $1,000 from a network of brokerage firms including Charles Schwab, Merrill Lynch and Morgan Stanley. The bonds will be available in various maturities, ranging from about three years to 10 years.

According to usafacts.org, as of January 2023, Japan owned $1.1 trillion in US Treasuries, making it the largest foreign holder of the national debt. The second-largest holder is China, which owned $859 billion of US debt.

The Bottom Line

Foreign bonds may offer higher yields than domestic bonds and diversify the portfolio. However, these benefits should be weighed against the risk of loss from unfavorable foreign exchange moves, which can have a significant negative impact on total returns from foreign bonds.

U.S. Treasury securities are considered to be about the safest investments on earth. That's because they are backed by the full faith and credit of the U.S. government. Government bonds offer fixed terms and fixed interest rates.

Do foreigners pay tax on US bonds? ›

Bond Interest vs Bond Fund Dividend

Since the bond income is interest income and it is US sourced — it is not taxable to the nonresident alien owner of the bond.

Domestic Holders of Federal Debt

The Federal Reserve, which purchases and sells Treasury securities as a means to influence federal interest rates and the nation's money supply, is the largest holder of such debt.

Your ability to purchase US government bonds may be affected by your home government's laws and regulations, but generally, non-US citizens are allowed to buy US government bonds. You will need either a Social Security number or an Individual Taxpayer Identification Number.

The U.S. Treasury doesn't let just anyone purchase I bonds, so you'll need to see if you qualify to buy them. You'll need to be one of the following: A U.S. citizen, even if you live abroad.

In Germany, the statutory deposit guarantee, provides cover for investment deposits, including savings bonds without subordination, up to 100,000 euros per customer and per credit institution.

U.S. Treasuries

These are considered the safest possible bond investments. You'll have to pay federal income tax on interest from these bonds, but the interest is generally exempt from state tax. Because they're so safe, yields are generally the lowest available, and payments may not keep pace with inflation.

Know the bond's rating.

The lower the rating, the more risk there is that the bond will default – and you lose your investment. AAA is the highest rating (using the Standard & Poor's rating system). Any bond with a rating of C or below is considered a low quality or junk bond and has the highest risk of default.

Buy Bonds during a Market Crash

Government bonds are generally considered the safest investment, though they are decidedly unsexy and usually offer meager returns compared to stocks and even other bonds.

The Mexico 1 Year Government Bond has a 11.464% yield (last update 11 Jun 2023 2:15 GMT+0).

How safe are Mexican bonds? ›

They are very secure.

The Mexican Federal Treasury Certificates (CETES) are one of the instruments the government issues for funding, and in return it offers an interest rate collectible at the end of a set term.

Investors who do not reside in Brazil can trade government bonds without an income tax. The only exceptions are tax havens. The secondary market is very active, with multiple market makers and dealers.

In total, other territories hold about $7.4 trillion in U.S. debt. Japan owns the most at $1.1 trillion, followed by China, with $859 billion, and the United Kingdom at $668 billion.

Key Takeaways

China invests heavily in U.S. Treasury bonds to keep its export prices lower. China focuses on export-led growth to help generate jobs. To keep its export prices low, China must keep its currency—the renminbi (RMB)—low compared to the U.S. dollar.

How much money does the U.S. owe to China? China owns roughly $1.08 trillion worth of U.S. debt. 2 This amount is subject to market fluctuations. The value will change whenever China trades Treasury securities or when the prices of those bonds change.

Historically, stocks have higher returns than bonds. According to the U.S. Securities and Exchange Commission (SEC), the stock market has provided annual returns of about 10% over the long term. By contrast, the typical returns for bonds are significantly lower. The average annual return on bonds is about 5%.

You must create an account at TreasuryDirect to buy I bonds; they cannot be purchased through your custodian, online investment account, or local bank. Potential disadvantages include: Maximum investment each year is $10,000. Yield is taxed as ordinary income.

Political Risk

Falling under political risks associated with foreign bonds is the potential issue of issuing countries being unable to cover the debt associated with foreign bonds they issued. Owing to this very fact investors could potentially lose some, if not all, of their principal and interest.

The U.S. Treasury doesn't let just anyone purchase I bonds, so you'll need to see if you qualify to buy them. You'll need to be one of the following: A U.S. citizen, even if you live abroad.

Investors who do not reside in Brazil can trade government bonds without an income tax. The only exceptions are tax havens. The secondary market is very active, with multiple market makers and dealers.

What does it mean when you buy a bond from a country or a company? ›

Bonds are issued by governments and corporations when they want to raise money. By buying a bond, you're giving the issuer a loan, and they agree to pay you back the face value of the loan on a specific date, and to pay you periodic interest payments along the way, usually twice a year.