The choice between domestic or global bond ETF’s is not an easy one, the domestic market is quite small. But Australian investors with retirement liabilities essentially denominated in AUD may rightfully shy away from taking another currency exposure. The following guide from the Russell ETF resources website provides some further guidance – Investing in Domestic v Global Fixed Income – An Australian Perspective
International Bond ETF Performance
Global fixed income has performed slightly better historically but at a higher risk level. And risk is not a theoretical concept when you lose money. Other advantages of global fixed income is diversification, the Australian fixed income pool and number of issuers is relatively small. However against this is that Australian credit quality, particularly government credit quality is very good.
Another alternative is a fully hedged bond fund but they have their own peculiarities, mark to market accounting of the hedges – put in place to limit currency exposure – can result in some bond funds not being able to pay out any distributions. Hedging also costs money which all eats into the returns investors eventually see in their pockets.