International bonds as an asset class constitute the single largest component of the total investable capital market portfolio valued at over $15.1 trillion U.S. dollars in 1999. Investing in international bonds provides certain benefits as compared to investing solely in U.S. bonds. Risk and return, two fundamentals of investing, exist for any potential investment as rational investors always seek the highest return for a given level of risk. For those investors who maximize return for a given level of risk, investing in international bonds does not make sense unless international bonds can improve the portfolio's rate of return relative to that available from U.S. bond investments. This paper demonstrates how international bonds interact with U.S. bonds and how their inclusion affects the risk/return characteristics of diversified fixed-income portfolio. This paper examines the returns, volatility, currency movements, correlation, and portfolio effects between the United States and international bond markets during the period 1985 to 1999.