Why should you consider dollar bonds?
Have you ever wondered why many investors and governments continue to buy bonds in dollars when there are alternatives in local currencies? Imagine your savings as a river looking for safe channels: some stretches are calm, others more risky. Dollar bonds represent that stable channel that offers global liquidity, access to deep markets and some protection against the depreciation of local currencies. However, this stability also comes at a cost: the investor is exposed to variations in U.S. interest rates, the issuer’s credit risk, and, if it resides outside the U.S., foreign exchange risk.
This article clearly explains what dollar bonds are, why they attract so many global investors, what advantages they offer, and what risks they involve. With recent examples and data—including references to U.S. Treasury yields and the 2025 macroeconomic backdrop—you’ll see how to assess whether these instruments fit into your investment strategy.
What exactly are dollar bonds and how do they work?
A dollar bond is a debt instrument issued by governments, companies, or institutions that promises to pay interest and repay principal in U.S. dollars. These can be US Treasuries, corporate bonds of large multinationals or sovereign bonds of emerging countries denominated in dollars.
We can imagine it as an international promissory note: the issuer borrows in dollars and promises to repay them with interest. If you buy that promissory note and hold it until maturity, you will receive a periodic income and your principal at the end. For investors living outside the United States, these bonds also involve exposure to the exchange rate between the dollar and their local currency.
Treasuries are considered the safest asset in the world and serve as a global benchmark for fixed income. In 2025, yields on the 10-year bond are between 4.0% and 4.2%, levels that make fixed income attractive after years of low rates, according to data from the Federal Reserve. On the other hand, corporate bonds in dollars offer higher coupons in exchange for a higher credit risk, while sovereign bonds of emerging countries pay an additional premium for country risk.
In short, when interest rates rise, the prices of existing bonds fall, and vice versa. Therefore, the decisions of the Federal Reserve and the behavior of the Treasury market directly influence the profitability of these instruments.
Advantages of investing in dollar bonds
Liquidity and global access
The dollar bond market is the most liquid in the world. U.S. Treasuries can be easily bought or sold and serve as a reference for international financial operations. According to the U.S. Treasury Department, its market depth is key to maintaining the stability of the global financial system.
Diversification and refuge
Investing in assets denominated in a hard currency such as the dollar reduces exposure to the risk of depreciation of local currencies. Studies by the National Bureau of Economic Research indicate that including debt in foreign currency can improve diversification and reduce portfolio volatility.
Competitive profitability
Corporate bonds and sovereign bonds in dollars usually offer higher yields than Treasuries, compensating for the additional risk. In 2025, managers such as Morningstar highlight that fixed income has regained attractiveness after several years of historically low rates.
Hedging Tools
Treasuries are used as collateral in numerous financial contracts and as a basis for derivatives that allow duration or exposure to be managed without selling physical bonds. In addition, there are TIPS, inflation-indexed bonds that adjust their principal according to the U.S. price index, offering protection against increases in the cost of living.
In short, dollar bonds combine liquidity, diversification and profitability, although with risks that must be understood before investing.
Key risks when investing in dollar bonds
Interest rate risk
When the Federal Reserve raises rates, bond prices fall. In 2025, after a cycle of monetary policy hikes and adjustments, this sensitivity has once again come to the fore. Buying long-term bonds in a rising rate environment can result in losses if sold before maturity.
Credit risk
Corporate bonds and sovereign bonds in dollars of emerging countries carry the risk of default. Yield spreads reflect that risk premium, as reported by Global X and JP Morgan. Assessing the credit quality of the issuer is essential before investing.
Foreign exchange risk
For investors who do not trade in dollars, the exchange rate can amplify or reduce profits. If the dollar strengthens against the local currency, profitability improves; if it weakens, it can be reduced. Media such as Reuters warn that the Fed’s decisions and flows to emerging markets usually influence these movements.
Systemic and liquidity risks
Organizations such as the International Monetary Fund and the Financial Stability Board have warned about the global dependence on financing in dollars. In times of financial stress, the cost of accessing dollars can increase, affecting countries and companies indebted in this currency.
Therefore, risk management must be active: assessing duration, diversifying issuers and deciding whether or not to hedge currency exposure are strategic decisions to protect returns.
Current context: what the 2024–2025 data tells us
After the rate hikes that began in 2022, the fixed income market is going through a rebalancing phase. The 10-year U.S. Treasury yields, according to the St. Louis Federal Reserve, remain around 4%, which has returned interest to dollar bonds.
Emerging and corporate bonds, according to the IMF, have shown greater resilience than in other cycles thanks to better fiscal policies and stronger international reserves. This has made it possible to take advantage of opportunities in dollar-denominated debt without taking excessive risks.
On the other hand, the cost of hedging currency risk has decreased with the moderation of rates in the United States, which improves the attractiveness of dollar bonds for foreign investors. In this context, evaluating the yield curve and credit spreads becomes essential to choose the best time to enter.
In what situations are dollar bonds worthwhile?
The convenience of investing in dollar bonds depends on the profile and objectives of each investor.
For conservative profiles, Treasury bonds or funds that replicate them are the best option: they offer stability, liquidity and protection against local volatility. In 2025, these instruments offer more attractive coupons than in previous years, according to U.S. Treasury data.
Moderate investors can combine U.S. sovereign bonds with investment-grade corporate bonds and a small proportion of emerging market debt. This balanced approach diversifies risk and improves expected returns. Banks such as Bank of America Private Bank recommend staggering maturities to mitigate the risk of reinvestment.
Aggressive or institutional investors can seek higher yields on high yield bonds or emerging market debt, using currency hedging where appropriate and maintaining active credit risk management.
For companies and SMEs, the decision to issue or hold debt in dollars depends on the origin of their income. If they invoice in USD, it makes sense; if they do it in local currency, it is advisable to hedge or index income. The World Bank and the IMF insist on strengthening local markets to reduce dependence on external financing.
Conclusion: Are dollar bonds worth it?
Dollar bonds continue to be a key piece in the strategy of many investors and governments. They offer access to deep markets, liquidity, and diversification, but require an understanding of rate, credit, and exchange rate risks. In the current context, with higher yields and monetary policies in adjustment, these assets have regained attractiveness as a source of stable income.
For savers, they represent a refuge from local volatility. For sophisticated investors, a global diversification tool. And for companies, an instrument that, if managed well, can balance their finances. As the International Monetary Fund reminds us, financing in dollars requires prudence, planning and coverage in the face of changing scenarios.
In short, dollar bonds are worthwhile when they are understood and used strategically: neither absolute refuge nor speculative betting, but a solid piece within a well-diversified global portfolio.