Diversifying into foreign bond markets has been a winning trade for US investors during the opening month of 2026. Using a set of ETFs to track performance highlights widespread outperformance so far this year over US bonds, based on returns through yesterday’s close (Jan. 29).

Leading the field by a wide margin: inflation-indexed government bonds outside the US. The SPDR FTSE International Government Inflation-Protected Bond ETF (WIP) is up a strong 4.5% this year, well ahead of other slices of foreign fixed income as well as its US equivalent (TIP).

Notably, all the foreign bond ETFs in the chart below are outperforming the US investment-grade fixed-income benchmark: Vanguard Total Bond Market (BND), which is posting a fractional a 0.3% gain.
 

A weak US dollar has been a strong tailwind for foreign assets lately, including bonds. Consider that WIP’s 4.5% year-to-date rally has been accompanied by 1.6% loss in an ETF proxy (UUP) for the greenback so far in 2026.
 

Inflation is another concern that’s supporting WIP, a risk factor that’s come into sharper focus lately as debt levels in several of the major economies around the world are at or near record levels. As a result, governments are paying out higher levels of interest, which further lifts debt loads and threatens to raise inflation.

The International Monetary Fund estimates that in six of the seven G7 nations – a group of the wealthiest countries, including the US – government debt matches or exceeds economic output.

Amid worries about the fiscal path ahead, investors are increasingly seeking refuge in inflation-hedged securities for bond-market allocations. The sentiment shift is also a factor driving gold prices higher – the SPDR Gold Shares ETF (GLD) has soared 25% so far in 2026, reflecting a growing appetite to own an asset that’s immune to fiscal risk and the fragilities linked to fiat currencies.

“The World Economy Is Hooked on Government Debt,” reports The Wall Street Journal this week. “It’s a red flag. It’s another symptom of the vulnerabilities bubbling under the surface of advanced economies,” said Neil Shearing, chief economist at Capital Economics in London.

More By This Author: