If you need a compelling reason for investing internationally, look at what has happened to the dollar in the foreign exchange market this year.
Between the end of last year and last week, the dollar declined 10.4 percent against the Japanese yen, 10 percent against the German mark, 22.2 percent against the British pound and 14.3 percent against the European Community's ECU, which is a basket currency of the member nations.
This means that if you had invested $100 in yen at the end of last year, your money would have been worth $110.40 last week. If you were a Japanese investor who converted yen to dollars, your $100 would have been worth $89.60.
Not only has the decline in the dollar made it seem wise to own foreign currencies, but also the higher real interest rates (nominal rate minus inflation rate) available in Europe and in Japan have attracted U.S. investors to international fixed-income securities. (Those rates are 5.27 percent in Japan, 6 percent in Germany and 3.5 percent in the United States.)
According to the Investment Company Institute, the assets of global bond funds averaged $3 billion in 1988 and 1989; by the end of August, those assets had exploded to $8.6 billion.
In measuring performance through the end of September, Salomon Brothers Inc.'s U.S. government bond index was up 2.96 percent, its world government bond index (including U.S. securities) was up 4.4 percent and its non-U.S. government bond index was up 5.8 percent. So far this year, the name of the game has been diversification of countries and currencies along with astute management.
The Treasury has tentatively scheduled the auction of a two-year note for Wednesday, in $5,000 minimums. The notes should return 7.90 percent.