As ‘Sell America’ market volatility rages on, look to your bonds

International Bonds Gain Momentum as Investors Diversify Portfolios

The debate over the “Sell America” trade and capital moving out of U.S. markets has brought foreign stocks into the spotlight. However, international bonds, especially emerging market bonds, have also been performing exceptionally well in recent times.

Joanna Gallegos, co-founder of fixed-income ETF company BondBloxx, highlighted the outperformance of emerging market bonds, stating that it was the best-performing area in fixed income last year and has continued to shine this year. For example, the iShares JPMorgan USD Emerging Markets Bond ETF (EMB) saw over a 13% return in 2025, while BondBloxx’s JP Morgan USD Emerging Markets 1-10 Year Bond ETF (XEMD) also delivered solid returns.

Several factors are driving the interest in international bonds, including weakness in the U.S. dollar, concerns about the fiscal health of the U.S. amidst high spending and deficits, and the impact of President Trump’s foreign policy. Gallegos emphasized that investors are not abandoning the U.S. market but are looking to capitalize on the opportunities presented by international diversification.

According to Gallegos, the recent performance trends and currency pressures are prompting investors to explore non-U.S. assets. She highlighted that the U.S. trade is not disappearing but that investors are seeking to take advantage of the returns generated by international markets.

Data from Morningstar for January revealed that while U.S. market ETFs attracted significant inflows, investors also poured money into international equity and taxable bond ETFs. Despite concerns about a private credit bubble, the U.S. remains a strong fixed-income market with ample opportunities for global investors.

Gallegos underscored the importance of expanding portfolios to include new sources of return while maintaining U.S. assets at the core. She mentioned that the bond market is exhibiting a steepening yield curve, with long-term rates higher than short-term rates, signaling a healthy market.

Todd Sohn, technical strategist at Strategas Securities, noted that the fixed-income side of portfolios is undergoing significant changes, with more capital poised to move into credit markets and bonds as interest rates decline. Gallegos added that investors no longer need to chase high yields and can explore investment-grade credit for higher yields with low default risk.

Overall, bonds are no longer just a defensive tool but also offer opportunities for income generation. Gallegos emphasized that bonds play a vital role in portfolios as both a safety net and a source of income.

Top bond ETFs by assets include Vanguard Total Bond Market ETF (BND), iShares Core U.S. Aggregate Bond ETF (AGG), Vanguard Total International Bond ETF (BNDX), iShares 0-3 Month Treasury Bond ETF (SGOV), and Vanguard Intermediate-Term Corporate Bond ETF (VCIT).

In conclusion, international bonds are gaining momentum as investors seek to diversify their portfolios and capitalize on the opportunities presented by global markets. The bond market, particularly in emerging markets, is offering attractive returns, making it an essential component of a well-rounded investment strategy.