Foreign bonds have been in the news a lot recently. Lots of European countries borrowed too much money, and now they are trying to find a way to get out from under that debt without defaulting on it.

The only question at this point is what sort of haircut the owners of European sovereign debt are going to enjoy. One way or another, they are going to take a haircut. And that threatens the solvency of big European [and American] money-center banks, who own a lot of that sort of debt. This in turn threatens the liquidity of the overall financial system. And we know from 2008 how nasty that sort of thing can be.

Should investors buy foreign debt? If so, how? How does currency risk factor into the decision? How can the risks of foreign bonds be controlled?

All this and more is in a paper that Patrick Collins posted to the site today: International Bonds: Risks & Rewards.