Know how to diversify your portfolio with US bonds

livemint.com:

Sovereign guarantee With the US Federal Reserve on a rate-hike spree, 1-year US treasury yields have climbed up from 0.38% in 2022 to 5.59% in October, making it a good time to invest in US debt. Given the inversion in the US yield curve (long-term yields are lower than short-term yields, see chart), the 0-1-year segment offers the highest yields of 5.43% to 5.59%. Compared to this, 10-year US treasuries are offering 4.80%.

And once you account for returns in rupee terms assuming the Indian currency depreciates, that adds another 4-5% to your dollar-denominated returns. Over the long run, the rupee has depreciated against the dollar, though there have been phases when the Indian currency has appreciated. If we look at 1-year rolling returns, in 10 of the 11 years since 2012, the rupee depreciation has added to the US dollar-denominated returns.

Also, while US treasuries trade at lower yields than the government of India debt paper, with the gap between the two narrowing, having exposure to US debt has become relatively more attractive today. This yield gap has narrowed from around 400 basis points (bps) to 164bps since January 2022. The US sovereign debt, a very high-quality asset, enjoys AA+ rating compared to India’s BBB- rating from rating agency Standard & Poor’s.

Bandhan US Treasury Bond 0-1 year Fund of Fund (FoF) The FOF invests in JPMorgan BetaBuilders US Treasury Bond 0-1 year UCITS ETF, an exchange traded fund with exposure to 0-1-year US treasuries. The FOF will have 100% exposure to US treasury except for some cash holdings for liquidity needs. The fund invests in US Treasuries maturing in up to one year’s time, which makes it low-risk from an interest rate risk perspective.