CHF hedged International Bonds

I’m thinking of a classic 60-40 portfolio. Stocks being total intl. stock market (e.g. VT), and bonds being total intl. bond market.

Now, for intl. bonds, would it make sense to hold one part in a CHF-hedged version, the other part in an unhedged version? I’m seeking for portfolio diversification rather than strict CHF-hedging, because I’m not going to sell my assets anytime soon.

Strangely, I found unhedged intl. bond funds UCITS, but not US.

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Did you read the classic vanguard intro paper in currency hedging, it’s a good starter.


Not yet, going to have a look at it, thanks!

What’s your opinion?

Given the goal of bond in a classic portfolio, I think not hedging would be counter to that (it would get FX volatility).

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I get that. I’ve been thinking a lot about bonds not actually being the “safe” part of my portfolio. So safety might come more from diversification within asset classes. I thought currency diversification might be that.

Kind of applying a “risk parity” approach.

my long term portfolio is quite simple and quite exposed to bonds
50% global bond ETF ( DBZB )
50% stocs (IWDA)

At the beginning of 2022 , when the bonds started to drop, I remember reading an article stating that the drop is caused by the increase of the interest rate/inflation.

It seems that the interest rates will continue to increase until 2023/2024, so does that mean that the negative trend will continue until the interest rate stabilises?

What does the experts say ? I was just wondering if it stupid to keep bonds at this point in time. Do you believe there is a chance they will bounce back in the medium term (3-4 years?).


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Bonds volatility will be lower than stocks.
So if a huge recession hit in 2023, sending your etf to -50% you should expect your bond allocation to have a much lower drawdown like -15%.
We do not know the amount invested but this projected losses could tell you if you will handle it well or not.

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yes, that aspect make sense but the point is that the bond market reacted so drastically…
When the bond dropped substantially in mid 2016 the stocks were flying though.
Comparison stocks/global bond.

Only invest in things you understand… I’m sorry, but that is bonds 101, interest rate goes up → bond prices go down.

As interest rates rise, the NAV of your bond fund goes down, but its yield rises. Over time, the increased interest payments from the individual bonds within the fund will compensate the loss of NAV, and ultimately outweigh it.

I like this topic insightfully started by nisiprius on the bogleheads boards to try and understand it: Short- and longer-term effects of rising interest rates on a bond fund -

Long story short, it’s important to take the duration of our bond funds into account when choosing them, and not expect stable value or positive returns on a duration shorter than the bond fund duration (or 2D-1 if dealing with multiple constant raises).


interest rate went up in the past but the result was different , with an acceptable % drop . This is a big exception

thanks, that seems like a good thread to read

While we are here… What are alternatives to this?

I am also dissappointed by my Bond ETFs which where supposed to be the stable part. But that is not the case with bond funds because they don’t just hold the bonds till they expire.

Like this they are more speculation on the interest rates, than small but stable profits.

(And a similar thing with REIT ETFs. I wanted something that represented the value of local real estate, but instead I got speculation on the interest rate for mortgages…)

I don’t have an answer…
If you look at the low risk profile in the link below, apparently there are competitors who did much better…so we might want know who are those competitors

Can you image you have a couple of years left to retirement, and your capital drops 15%?..that’s not nice.

Liability matched individual bonds or medium term notes (Kassenobligationen), or savings accounts.

Higher returns mean higher risk. No market risk, no credit risk and no duration risk means cash.

Edit: just to note: individual bonds prices also drop when interest rates rise, it’s just that they get back to face value as they near their maturity date. Bond funds also auto-correct and claw their NAV back with time, it’s just that since we can’t hold them to “maturity”, it’s harder to match their duration with our expected liabilities. Short term liabilities (nearing retirement) would warrant a shortening of duration of the bond fund, which would in turn reduce its sensitivity to interest rates.

I thought they are always kept to an average duration… thus representing the value of a bond that is always maturing in X years (but never gets there)… which is kinda bad.

This depends on the fund. Index funds typically track all bonds with a term to maturity within a predefined range. E.g. “iShares Swiss Domestic Government Bond 7-15” tracks Swiss Gov Bonds that mature in 7-15 years. The weighted average maturity will vary a bit.

However, there are also bond funds that track all maturities (e.g. all bonds with a certain minimum credit rating) and bond funds where the maturity range starts at 0 (or something very short such as 1 month). With such bond funds, the performance should be close to holding individual bonds to maturity, except that the fund will keep buying new bonds as they are issued or fall into the predefined maturity range. Not suitable for liability matching, though.

I’m wondering, what kind of bond allocation would you recommend for a 50 year drawdown FIRE portfolio (60/40)? Withdrawing monthly from the best-performing funds.

I was thinking of an equal weight allocation:
10% long term treasuries
10% intermediate term treasuries
10% short term treasuries
10% cash

Or might I aswell just buy a total bond market fund like BNDW (CHF-hedged, of course)?

I’m not sure I like the idea of non-rolling bond ladders / liability-matching, because they don’t give me diversification from my stock allocation. And that’s the whole idea behind safe withdrawal rate research according to Bengen, ERN etc. Or am I wrong?

One feature Bond funds can offer is currency hedging if the underlying bonds are not in CHF.
I just did some correlation analysis of most government bond ETFs hedged to CHF or available in CHF to VT in CHF (non hedged).
Sadly, the US treasury ones as well as the EU gov bond ETF are pretty new, so not sure how reliable this information is. Btw, SHY (the non hedged 1-3 Year US Treasury Bond fund) has a correlation of -0.24 with VT in CHF from 2008 to 2022.
I also added CHCORP and AGGH to the list just to see how it compares.

Ticker Name TER % Yield to Worst % Kupon % Restlauf-zeit (Jahre) Options-bereinigte Duration Yield nach Steuern (-20% von Kupon) Correlation with VT in CHF Start of Corr measure End of Corr masure
CSBGC3 iShares Swiss Domestic Government Bond 0-3 ETF (CH) 0.15 0.86 2.41 1.33 1.31 0.38 -0.05 02/07/2009 09/12/2022
CSBGC7 iShares Swiss Domestic Government Bond 3-7 ETF (CH) 0.15 0.91 2.22 5.07 4.79 0.47 -0.13 26/06/2008 09/12/2022
CSBGC0 iShares Swiss Domestic Government Bond 7-15 ETF (CH) 0.15 1 1.58 11.16 10.16 0.68 -0.1 26/06/2008 09/12/2022
IBTC iShares $ Treasury Bond 1-3yr UCITS ETF 0.1 4.41 1.44 1.94 1.87 4.12 -0.07 26/06/2019 09/12/2022
IDTC iShares $ Treasury Bond 7-10yr UCITS ETF 0.1 3.53 1.64 8.58 7.79 3.20 -0.21 26/06/2019 09/12/2022
DTLC iShares $ Treasury Bond 20+yr UCITS ETF 0.1 3.69 2.51 25.95 17.86 3.19 -0.14 23/10/2017 09/12/2022
IEGC iShares Core € Govt Bond UCITS ETF 0.12 2.4 1.78 9.22 7.7 2.04 0.02 14/05/2020 09/12/2022
CHCORP iShares Core CHF Corporate Bond ETF (CH) 0.15 1.98 0.8 4.57 4.4 1.82 0.13 13/01/2014 09/12/2022
AGGH iShares Core Global Aggregate Bond UCITS ETF 0.1 3.42 2.11 8.74 6.89 3.00 0.14 03/04/2018 09/12/2022

Looking at these yields, how exactly do I find the costs of currency hedging? Can I just look at the past tracking error of the fund to get a rough estimate?
E.g. the non hedged equivalent of DTLC is IDTL which had a tracking error of ~0.1% in the last years, which roughly corresponds to the TER. DTLC, however, had a tracking error of ~3%. Can I naively assume, that this is due to hedging and that future deviations will be on the same order of magnitude?

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Well, just looking at yields I see that IBTC, IDTC, DTLC, DTLC, AGGH must be exposed to bonds in USD and IEGC to bonds in EUR. This is a completely different story, hedging or not. There is AGGS hedged in CHF but, as far as I understand how it should work, YTM data are meaningless because it’s just a mathematical weighted average of YTM of individual bonds, no matter if they are quoted in CHF or TRY.

And of course you should calculate correlation between price data expressed in the same currency.