I’ve been wondering the same and apparently worked under false assumptions so this is an opportunity for me to dig a bit deeper into this. I’m building my knowledge so may work with insufficient data and/or draw the wrong conclusions. Thanks in advance to all those who will participate and help me understand the risks and returns involved better.
Starting with an overview of the Bloomberg fixed income indices: https://assets.bbhub.io/professional/sites/27/Bloomberg-Fixed-Income-Indices-Overview.pdf
More specifically the Bloomberg Global Aggregate index, which is widely used: https://assets.bbhub.io/professional/sites/27/Global-Aggregate-Index.pdf
And with the main question of weighting. For which I’ve found this article from Morningstar which, while it’s not its main topic, allowed me to better understand what Market-Value weighting means for bonds: https://www.morningstar.com/funds/what-makes-market-value-weighting-work-bond-investing
My understanding is that, for fixed income, most funds will have credit rating and liquidity requirements for the securities they include. That’s the first line of protection for us: by using those funds, we trust the credit rating agencies to properly identify the risk of the securities held by the fund and said securities have been reviewed.
The weighting, to me, is a bit harder to understand. We trust market participants to individually evaluate each security and price it properly but since the bond market is a bit more opaque than the stock one, could inefficiencies occur?
The most important factor, for me, is to diversify credit risk. If a risk of default has not been properly evaluated by the credit agencies and the market, I’d want it not to affect my assets too much. How much holdings of a singular creditor is too much to hold is a personal assessment. I’d still check what the weightings in the fund are and reduce exposure to a single creditor by adding another/other fund(s) without that creditor as needed.
That being said, the global aggregate approach seems to me to be secure enough on a broad basis.
As a non-US investor, I wouldn’t feel safe with 50%+ in US securities. Other instruments have less of them, for example AGGS ( iShares Core Global Aggregate Bond UCITS ETF, hedged in CHF) has 28.45% of US Securities: https://www.ishares.com/ch/individual/en/products/295830/ishares-core-global-aggregate-bond-ucits-etf-fund
If that still seemed too concentrated for me, I could see myself overweighting Switzerland and adding a fixed income ETF of Swiss securities to my holdings.