Brady Bonds as an Investment

The recent financial turmoil is causing investors of all stripes to search for investments that are both safe and yield enough money to allow them to continue on their retirement goals. U.S. Treasury bonds are safe, but yield almost 0% with the recent Fed Rate cuts. It is best for the astute investor to look outside the United States to foreign countries bonds. To reduce the risk of investing in foreign bonds, it is best to buy bonds that have been made with the U.S. government. One example of these is Brady Bonds.


By the end of the 1980’s many Latin American countries had defaulted on their debt obligations. Faced with the prospect of the collapse of other emerging market debt, the United States decided to take steps to back up the Latin American countries. U.S. Treasury Secretary Nicholas Brady worked with international monetary organizations to develop a new type of bond attractive to investors. The organizations decided to back up existing debt with U.S. Treasury zero-coupon bonds. Because of this newly added security, trading in the bonds and their value to investors increased.

Reasons for Investment

1. Safety-As mentioned above, Brady Bonds are backed by bonds the United States Treasury issued. As long as they United States stays solvent, these bonds will never default. With the increasing danger of emerging market defaults, this security allows investors to sleep easy at night. Plus, investors still received the extras interest that comes with most emerging market debt. The international banking community will not let these bonds default. It would deal too big of a blow to the international debt markets. But, the chance of countries not paying is slim. In fact, many of the countries have already paid off their bonds.

2. Capital Gains-Because Brady Bonds are debt from less-developed countries, they contain a higher interest rate. In turn, this means a greater return for the investor. The recent credit crunch and international recession pushed interest rates around the world almost to zero. Look at the United States Treasury Bonds. Investors see them as the safest fix income investments in the world. This trust caused their value to increase and their interest rate to decrease. Brady Bonds offer an increase in interest without the increase of risk.

Brady Bonds allow the international investor to capture more capital gains and to make more money at a time where most capital markets face huge losses.

Make sure to ask your investment adviser about them today.