Government bonds linked to inflation in foreign markets topped returns for the major asset classes, based on a set of exchange-traded funds. Other slices of the offshore fixed-income landscape also delivered strong results for the trading week through July 24.
SPDR FTSE International Government Inflation-Protected Bond (NYSEARCA:WIP) rose 2.7% last week – the top performance and the fund’s best weekly gain in two months. WIP closed on Friday at the highest price since March 6.
A key factor in WIP’s gain: the sliding value of the US dollar relative to foreign currencies. A bearish trend in the buck is usually beneficial to foreign assets denominated in greenbacks.
“A weaker dollar doesn’t necessarily reflect a weak US economy but reflects a stronger global economy on a relative basis,” says Jeffrey Schulze, an investment strategist at ClearBridge Investments.
The US Dollar Index fell a hefty 1.6% last week, marking the fifth straight week of decline. This benchmark, which measures the dollar’s value via a basket of major currencies, ended the week at its lowest level since October 2018.
Not surprisingly, the dollar tailwind supported other corners of foreign bonds last week. Foreign junk bonds posted the second-best return for