The Case for Non-US Fixed Income: Rethinking Currency Exposure When the Dollar Feels Wobbly

At Members’ Wealth, we’ve seen a noticeable uptick in client interest around international diversification—especially among those already well-positioned in U.S. equities and domestic bonds. With rising concerns about structural deficits, political dysfunction, and the longer-term purchasing power of the dollar, some are asking the right questions: How exposed are we if the dollar weakens? And what can we do about it without abandoning our core allocation principles?

Melissa and Drew are one such couple. Their portfolio is well built—U.S. equity, global equity, and a traditional fixed income allocation that leans heavily on high-quality domestic debt. But they’re entering their next phase of wealth management with sharper questions. They’re not interested in doomsday scenarios—but they are aware that nearly all of their fixed income is denominated in U.S. dollars. If the dollar experiences a meaningful decline over the next 5–10 years, they want some ballast in place.

So we explored: How do you access non-USD fixed income in a way that actually matters?

Why Add Non-Dollar Bonds at All?

Global bonds can serve as both a portfolio diversifier and a potential currency hedge. But unlike international equities, which often carry implicit currency exposure, many U.S.-domiciled bond funds and ETFs invest in dollar-denominated debt. That means you're not truly diversifying your currency exposure—you're still anchored to the U.S. dollar, even when buying foreign bonds.

Adding international bonds—particularly those issued in local currencies and not hedged back to the US Dollar—can reduce reliance on U.S. monetary policy, introduce new sources of return, and potentially boost income if other countries offer higher yields or diverging interest rate paths. But as with any diversification play, the real impact depends on the vehicle used and how the exposure is structured.

Choosing the Right Access Point

Most clients explore this space through mutual funds, ETFs, or—less commonly—direct purchases of foreign bonds.

Mutual funds tend to offer the deepest reach into foreign and emerging debt markets, often backed by teams that actively evaluate both credit risk and currency outlooks. They can be especially useful when navigating countries with capital controls, volatile currencies, or unreliable legal structures. That said, they often come with higher expense ratios, and the mechanics of hedging—or not hedging—back to the U.S. dollar varies considerably between funds. Some managers hedge actively based on their macro views. Others hedge passively or not at all. This isn’t always clear from the marketing materials. A deeper review of the fund’s strategy and history is essential before assuming you’re getting true currency diversification.

ETFs are generally lower cost and more tax efficient, with clear structures and disclosures. They can provide quick exposure to a diversified basket of international bonds, and because they trade intraday, they offer more liquidity than traditional mutual funds. But here too, the default is often hedged exposure—particularly among developed-market bond ETFs. You’ll want to look beyond the label and into the prospectus or portfolio commentary to determine whether the ETF is giving you local currency returns or filtering those through a USD lens.

Direct ownership of international bonds is typically reserved for institutional portfolios or ultra-high-net-worth clients with global custody and specialized access. Buying a euro- or yen-denominated bond directly might provide raw currency exposure, but it introduces complexity around pricing, taxation, and liquidity. For most clients, especially in taxable accounts, the operational burden outweighs the benefits.

The Hedging Question: To Hedge or Not to Hedge?

When you invest in foreign bonds, the currency question often matters more than the interest rate. If you’re holding an unhedged position, your returns are a combination of the bond’s yield and any gain or loss from currency fluctuations. If the dollar weakens, you benefit. If it strengthens, your total return can suffer—even if the underlying bond performs well in local terms.

Hedged strategies, on the other hand, attempt to strip out currency volatility, so what you’re left with is the interest rate differential and credit risk of the bonds themselves. This can be useful in periods where the dollar is strong or stable. But hedging has a cost, especially when short-term U.S. rates are higher than those abroad. That cost can eat into the net return, and in some cases, flip a positive local return into a negative dollar return after accounting for hedging expenses.

What’s more, not all hedging is created equal. Some strategies apply static hedges—maintaining constant exposure to USD regardless of currency outlook. Others use dynamic hedging based on forward rate models or manager discretion, which introduces variability into the return stream. And some funds claim to offer “partial hedging” without clearly disclosing how that’s implemented in practice.

For Melissa and Drew, we reviewed each fund’s currency policy in detail. We asked: Are we actually getting local currency exposure? How often is the portfolio rebalanced? What impact does the hedging strategy have on tax reporting and distributions?

RITE Integration: How This Fits in a Broader Plan

Through the lens of our RITE Framework—Risk, Investments, Tax, and Estate—this decision goes far beyond yield or currency speculation. It’s a conversation about portfolio concentration and structural blind spots.

Under the Risk pillar, we ask: how much of your fixed income portfolio is still implicitly tied to U.S. interest rate policy and dollar strength? Many U.S.-domiciled global bond funds hedge away the currency exposure or hold only dollar-denominated debt, which means they may not deliver the diversification you expect. We explore intentional allocations to local currency debt to diversify exposure across different monetary regimes, inflation cycles, and geopolitical drivers—not just issuers.

From an Investment standpoint, we’ve stress-tested how modest positions in unhedged bonds impact overall volatility, especially during periods of U.S. dollar weakness. These positions don’t dominate the portfolio, but they do act as a release valve when domestic markets move in lockstep.

On the Tax front, we evaluate whether the income characteristics—foreign tax withholdings, capital gains treatment, or premium amortization—are better suited for qualified or taxable accounts, ensuring asset location supports after-tax returns.

And under the Estate lens, we prioritize simplicity and transparency. We steer clear of foreign funds that introduce estate tax exposure or reporting complexities for heirs. Liquidity matters, too—particularly if ownership needs to transition quickly and cleanly across generations.

In short, we’re not just buying foreign bonds. We’re pressure-testing how these exposures fit within a broader wealth strategy—one that balances risk, aligns with long-term goals, and avoids unintended consequences.

Final Thoughts: Currency Is a Risk—and an Opportunity

Melissa and Drew didn’t walk away with a radical new allocation. They didn’t dump Treasuries for Thai baht bonds. But they did walk away with a clearer sense of where currency risk exists in their current portfolio—and where adding a thoughtfully constructed allocation to non-USD fixed income could help smooth outcomes over time.

Adding international bonds isn’t about predicting the dollar’s next move. It’s about creating intentional exposure to global return drivers—while knowing what’s under the hood.

At Members’ Wealth, we believe successful investing doesn’t just require the right assets—it requires the right structure. And in this next phase, especially for globally minded families, that structure starts with asking: Am I exposed to the wrong currency in the wrong places?

If you’re wondering how non-dollar assets might fit into your portfolio—or how to evaluate whether your current fund is truly giving you what it claims—let’s connect.

The information provided is for educational and informational purposes only and does not constitute investment advice and it should not be relied on as such. It should not be considered a solicitation to buy or an offer to sell a security. It does not take into account any investor's particular investment objectives, strategies, tax status or investment horizon.

These examples are for illustrative purposes only and do not represent actual client experiences. Individual results will vary based on personal financial circumstances and tax laws.

About the Author – Stu Caplan, CFP®

Stu Caplan is Senior Wealth Strategist at Members’ Wealth, a boutique wealth management firm that offers a comprehensive approach to serving individuals, families, business owners, and institutions.

The firm’s goal is to preserve and grow its clients’ wealth to endure over time, while thoughtfully evolving its strategy to suit an ever-changing world. With over 20 years of industry experience, Stu and the Members' Wealth team thrive on bringing clarity and confidence to clients' unique situations.

Stu received his MBA from The Robert H. Smith School of Business at the University of Maryland and his bachelor’s degree from the Eller College of Management at the University of Arizona. Stu resides in Bucks County, PA with his wife and two sons. He’s an avid golfer and is thrilled that his boys have embraced the game. He also volunteers his time as a board member of the PKD Foundation and Abrams Hebrew Academy.

To get in touch with the Members’ Wealth team today, I invite you to email info@memberswealthllc.com or call (267) 367-5453. 

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