Fixed Income Analysis, Second Edition

CHAPTER 21

INTERNATIONAL BOND PORTFOLIO MANAGEMENT³²⁰

I. INTRODUCTION

Management of an international bond portfolio poses more varied challenges than management of a domestic bond portfolio. Differing time zones, local market structures, settlement and custodial issues, and currency management all complicate the fundamental decisions facing every fixed income manager in determining how the portfolio should be positioned with respect to duration, sector, and yield curve.

In Chapter 16, the fundamental steps in the investment management process were explained. These steps include:

1. setting investment objectives

2. developing and implementing a portfolio strategy

3. monitoring the portfolio

4. adjusting the portfolio

The added complexities of cross-border investing magnify the importance of a well defined, disciplined, investment process. This chapter is organized to address these challenges for steps 1, 2, and 4.

To provide a broad overview of the many aspects of international fixed income investing in one chapter implies that many topics do not receive the depth of discussion they deserve. For example, the topic of currency management is extensive and we provide only the fundamental principles here. However, the same principles involved with currency management apply equally to international equity portfolio management.

While many of the examples and illustrations in this chapter apply to international investing from the perspective of a U.S. manager investing in bond markets ...