As 'Sell America' Volatility Rages, the Biggest Changes Are in Bonds
While U.S. markets still attract significant investment, international bonds, particularly those in emerging markets, are gaining traction, fueled by factors like a weaker dollar and strong recent performance. This shift suggests investors are looking beyond U.S. assets for diversification and returns.
International Bonds Gain Favor
Amid discussions about a potential "Sell America" trade, where capital rotates out of U.S. markets, international bonds, especially emerging market bonds, are performing well. Joanna Gallegos, co-founder of BondBloxx, noted that emerging markets were the best performing area in fixed income last year and so far this year.
For example, the iShares JPMorgan USD Emerging Markets Bond ETF (EMB) generated over a 13% return in 2025. BondBloxx's JP Morgan USD Emerging Markets 1-10 Year Bond ETF (XEMD) also saw similar returns in 2025.
Factors Influencing International Investment
Several factors are contributing to this increased interest in international diversification. These include weakness in the U.S. dollar, concerns about the fiscal health of the U.S., and the potential investing impact of President Trump's foreign policy. Gallegos believes currency pressure and performance-chasing are key drivers.
"The dollar pressure is putting more of a view on non-U.S. assets," Gallegos said. She added that investors are likely looking to capitalize on last year's returns, but the U.S. trade isn't disappearing.
However, investors also added $51 billion in net positive flows to international equity ETFs, a monthly record for that category. Taxable bond ETFs also saw significant inflows, with $46 billion from investors, led by Vanguard Total Bond Market ETF (BND) and the Vanguard Intermediate-Term Corporate Bond ETF (VCIT).
Despite concerns about a private credit bubble, Gallegos believes the U.S. continues to offer the strongest fixed income market and the biggest opportunity set for global investment.
Shifting Bond Strategies
Todd Sohn, technical strategist at Strategas Securities, believes the potential change in fixed-income portfolios is even more significant than in equity assets. He noted that money market funds have dominated flows, with trillions in assets sitting on the sidelines. As central bank interest rates decrease, Sohn anticipates more capital moving into credit markets and bonds.
Gallegos added that investors no longer need to reach for yield, highlighting investment-grade credit and the opportunity to move out on the rate spectrum to BBB, where yields are higher but default risk remains low. She also emphasized that bonds are not solely a defensive tool, but also offer opportunity and income.
Top Bond ETFs
According to VettaFi, the top bond ETFs by assets are:
Todd Sohn of Strategas Securities anticipates that money market funds, currently holding trillions in assets, will likely shift towards credit markets and bonds as interest rates decline.
