Are you looking to invest in sovereign bonds? After reaping returns from investing in municipal and U.S. Treasury bonds, you may see great opportunities in diversifying into sovereign bonds. Sovereign bonds, which are foreign country or government bonds, can outperform the U.S. Treasury bonds, especially in times when the U.S. is experiencing slow growth.

Sovereign bonds can be relatively stable investments. However, you’ll need to pay close attention if the country is experiencing high inflation because this can affect the bond’s value. Here are three steps you should take before investing in sovereign bonds:

1. Understand what sovereign bonds are and what they do.

2. Acquire a list of sovereign bonds.

3. Purchase sovereign bonds funds instead of individual bonds.

Action Steps
The best contacts and resources to help you get it done

Use the Internet to get help with sovereign bonds

Since you're new to sovereign bonds, you'll need to understand what they are and how they work. Another thing you'll need to understand is that only residents from that particular country can purchase the sovereign bond. That foreign bond must be registered in the person's name. You can, however, purchase sovereign bonds with the help of a sovereign bonds consultant or private agency.

I recommend: Economic Expert provides good sovereign bonds advice. It defines what this security is and how it works. Banker Trust also gives good sovereign bonds training. This website explains the difference between a normal bond and a sovereign bond. You’ll also learn how countries issue these bonds.

Obtain a list of sovereign bonds

Now that you know what sovereign bonds are and how they work, you'll want to obtain a list of them and have access to sovereign bonds information, such as their prices and yields. You'll also want to see how the bond has historically performed.

I recommend: BondsOnline provides a list of sovereign bonds where you’ll be able to find their yields on a daily basis. Fitch Ratings is a leading international bond-rating agency and publishes extensive reports and surveys on sovereign bonds free to registered users of its website.

Invest in sovereign bonds funds

Since there are restrictions to investing in sovereign bonds, you should consider investing in sovereign bonds funds. Sovereign bonds funds enable you to invest in several countries at once. As a result, you can reduce your risks. To reduce your risks, you should purchase quality sovereign bonds funds and then hold them for the long term in order to get a good return.

I recommend: iShares JP Morgan USD Emerging Markets Bond Fund is a fund you want to check into; it is an exchange-traded fund that has been operating since 2007. You’ll also want to look at SPDR Lehman International Treasury Bond ETF. Some of the countries that this exchange-traded fund invests in include Japan and France.

Tips & Tactics

Helpful advice for making the most of this Guide

• •  Make sure you keep all of your sovereign bonds funds' statements. That way, you'll be able monitor the amount of shares you own and your account value.