More Income, Less Volatility? The Case for Going Global

13 June 2025

4 min read

John Taylor| Head—European Fixed Income; Director—Global Multi-Sector

Nicholas Sanders, CFA| Portfolio Manager—Global Multi-Sector

AJ Rivers, CFA, FRM, CAIA| Head—US Retail Fixed Income Business Development

Fixed-income investors concerned about tariffs and US exceptionalism may find opportunities in hedged global bonds.

Tariff turmoil and trade tensions are fueling market volatility and raising new doubts about the US dollar and US Treasuries as safe-haven assets. We believe bond investors looking to stem tariff-driven portfolio volatility may find compelling opportunities—and higher income potential—outside the US.

Investor concerns about US exceptionalism aren’t new—but they’re mounting. Confusing tariff announcements, contentious trade talks, rising protectionism and the threat of new taxes on foreign investors are adding to market uncertainty. At the same time, the recent US credit downgrade, a weakening dollar and proposals to extend deficit-expanding tax cuts are prompting fresh scrutiny of US creditworthiness.

In our view, one antidote to this uncertainty may be to shift from a US-only bond strategy to a hedged global fixed-income strategy.

The Benefits of a Larger Opportunity Set

Going global dramatically expands the opportunity set. While the US bond market is the world’s largest, it constitutes just 40% of the global bond universe. By shifting to a global strategy, investors gain access not only to a broader range of issuers, credit profiles and yield curves across regions and sectors but also to a wider mix of credit sectors—including sovereign and corporate bonds, investment grade and high yield, and securitized assets such as residential and commercial mortgages.

This expansion goes beyond mere scale. Different countries operate under distinct economic, monetary and inflation regimes—offering uncorrelated return streams and alternative sources of income and risk. These differences can improve diversification and help investors better navigate shifting market conditions.

For active managers, this broader landscape often offers not just different but better opportunities to generate income and excess return. Regional differences in inflation, growth and policy cycles can lead to diverse market dynamics—and in many cases, more attractive valuations or higher hedged yields than those available in the US. This added flexibility gives active managers more levers to pull in pursuit of alpha.

Hedged Global Bonds: Historically Higher Returns, Lower Risk

One of the biggest challenges facing US investors is how to reduce volatility without sacrificing return potential. This is where global bonds hedged to the US dollar can shine. Over the past four decades, hedged global bonds have captured 86% of the gains from US bond-market rallies. But when US bonds sold off, hedged global bonds experienced just 65% of that downside (Display).

Historically, Global Bonds Have Diversified US Bond Risks

Bar chart depicting hedged global bonds with lower historical upside and downside capture relative to US bonds.

Historical analysis does not guarantee future results.
US bonds are represented by the Bloomberg US Aggregate Index. Hedged global bonds are represented by the combination of the FTSE World Government Bond Index Hedged from February 1985 through December 1989 and the Bloomberg Global-Aggregate Total Return Index Value Hedged USD from January 1990 through the present. Up capture represents the percentage of market gains captured when the US Aggregate Index return is positive. Down capture represents the percentage of market losses captured when the US Aggregate Index is negative. An investor cannot invest directly in an index, and its performance does not reflect the performance of any AB portfolio. The unmanaged index does not reflect fees and expenses associated with the active management of a portfolio.
As of May 31, 2025
Source: Bloomberg, FTSE and AllianceBernstein (AB)

Underscoring the global bond market’s relative stability in diverse conditions, hedged global bonds have consistently exhibited lower volatility than US bonds over the past 30 years (Display).

Hedged Global Bonds Have Been Less Volatile

Table showing sovereign 10-year bonds for 11 countries—all of which have higher yields when hedged to the US dollar.

Historical analysis does not guarantee future results.
US bonds are represented by the Bloomberg US Aggregate Index. Global bonds hedged are represented by the Bloomberg Global Aggregate Index USD Hedged. Global bonds unhedged are represented by the Bloomberg Global Aggregate Index USD Unhedged. An investor cannot invest directly in an index, and its performance does not reflect the performance of any AB portfolio. The unmanaged index does not reflect fees and expenses associated with the active management of a portfolio.
As of May 31, 2025
Source: Bloomberg and AB

Hedged global bonds have outperformed US bonds in the process. Over the 30 years ending May 31, 2025, the Bloomberg Global Aggregate Index (hedged to US dollars) returned 4.7%, versus 4.4% for the Bloomberg US Aggregate Index, on an annualized basis.

A global approach to fixed income can also help buffer equity market turbulence. Although both US and hedged global bonds have historically shown low or negative correlations to the S&P 500, the global strategy has proved especially resilient during periods of high US equity volatility.

In months when US stocks fell by more than one standard deviation, the correlation of hedged global bonds to stocks fell to –0.17, versus the –0.10 negative correlation of US bonds with stocks. In other words, hedged global bonds have historically offset US equity volatility more effectively than a US-only bond strategy.

Elevated Yields Create a Window for Global Income

Many central banks have slowed the pace of monetary easing, helping to keep global yields elevated. For US investors, hedging global bonds to the dollar can further boost those yields—at times exceeding what’s available in the US.

Higher yields do more than provide more income. They also help offset price declines that result from rising rates and widening spreads, providing a cushion in more volatile markets. In the case of 10-year government bonds, a hedging strategy can add 100 basis points or more to yields in developed markets (Display).

Hedging Can Lift Global Bond Yields

Line chart depicting hedged global bonds with lower three-year rolling volatility than US bonds and unhedged global bonds.

Current analysis does not guarantee future results.
Credit rating is represented by Bloomberg methodology. Hedged yields are hedged to US dollars.
As of May 31, 2025
Source: Bloomberg, Moody’s Investors Service, S&P and AB

Today’s opportunity set is especially compelling. If global demand for US Treasuries declines and capital shifts toward smaller markets, the resulting drop in yields could lift bond prices in those markets—creating a tailwind for returns.

US Bonds Still Matter in a Global Strategy

Taking a global approach to fixed-income investing doesn’t mean forsaking US bonds. The US is still a key component of the global bond market, and active managers will allocate capital where risk-adjusted returns appear most attractive. At times, that may mean leaning into US bonds; at other times, focusing beyond it.

With volatility still high and US exceptionalism in question, we think investors should consider ways to manage through bond-market uncertainty. In any market—and especially today—we believe a hedged global approach provides more opportunities to diversify risk, add alpha and generate income than a US-only bond strategy, while also delivering critical ballast in turbulent times.

The views expressed herein do not constitute research, investment advice or trade recommendations, do not necessarily represent the views of all AB portfolio-management teams and are subject to change over time.

About the Authors

John Taylor

John Taylor is Head of European Fixed Income and Director of Global Multi-Sector at AB. He is a senior member of the Global Fixed Income, UK and European Fixed Income, and Absolute Return portfolio-management teams. Prior to this, Taylor was responsible for the management of single-currency portfolios. He joined the firm in 1999 as a fixed-income trader and was named in Financial News’s 40 Under 40 Rising Stars in Asset Management in 2012. Taylor holds a BSc (Hons) in economics from the University of Kent. Location: London

Nicholas Sanders, CFA

Nicholas Sanders is a Vice President and Portfolio Manager at AB, and a member of the Global Fixed Income, Absolute Return, UK Fixed Income and Euro Fixed Income portfolio-management teams. Since 2013, he has been responsible for the analysis of sovereign and other liquid markets globally, with a focus on the European market. Prior to that, he worked as an associate portfolio manager on the Asian Fixed Income team, where he was responsible for analysis of and trade execution for local and global fixed-income markets. Sanders joined AB in 2006, and served as team leader of Servicing & Controls within the Australian & New Zealand Operations Group. Before joining the firm, he worked in both Australia and London as a pricing and valuation analyst. Sanders holds a BBus in economics and finance from the Royal Melbourne Institute of Technology (RMIT) and is a CFA charterholder. Location: London

AJ Rivers, CFA, FRM, CAIA

AJ Rivers is a Senior Vice President and Head of US Retail Fixed Income Business Development. Prior to joining AB in 2022, he was the director of Product Strategy at Lord Abbett. Throughout his career, Rivers has been directly involved in the rates and credit markets, and has directed the product development and competitive positioning of investment strategies in traditional and alternative assets. He has held roles in trading, risk management, portfolio analytics and product strategy. Rivers attended the McDonough School of Business at Georgetown University and graduated from the University at Buffalo for undergrad. He is a CFA charterholder, a Financial Risk Manager (FRM) and a Chartered Alternative Investment Analyst (CAIA). Location: Nashville

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More Income, Less Volatility? The Case for Going Global

The Benefits of a Larger Opportunity Set

Hedged Global Bonds: Historically Higher Returns, Lower Risk

Elevated Yields Create a Window for Global Income

US Bonds Still Matter in a Global Strategy

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