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If the dollar falls, the interest on the bond is worth less, when converted into a foreign currency. Foreign buyers would have to build the risk of future dollar drops into their bids.

This could cause the long-term bond interest rate to rise.

Isn't this a good thing? The Teasury bond will pay out more with a higher interest rate, meaning a larger yeild. In addition, as markets decline, the bond fund price increaes, which is also good for the holder.

Sorry for needing the 101. But it still seems like bond funds are a good bet in a declining market. Even if foreigners hold a large portion of bonds, jumping into an international index fund certainly is going to help, as they are currently off their peaks and declining.

Just to reiterate a question: What do most here see as the optimal investment over the next few months to 1.5 years or so?
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