Abstract
I study the risk and return characteristics of international bond mutual funds during 1988-1995. These actively managed funds do not demonstrate superior performance, net of expenses, against a wide range of benchmarks and I show that fund expenses are negatively related to performance. I find that returns on international bond funds are sensitive to exchange rate movements, while controlling for local currency returns on international bond indices. The funds have high exposure to the European, Canadian and U.S. bond markets and they are least sensitive to the Japanese Bond index and movements in Japanese Yen. I also find that the funds do not outperform a U.S. index, suggesting that U.S. investors did not gain diversification benefits using international bond funds.
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