5 Foreign Bond Funds for Yield-Hungry Investors

QE2 may further depress domestic bond yields. It may be time to look abroad for better payouts.

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[See 3 Ways to Invest in the Dollar's Decline.]

Since emerging markets have experienced a strong run-up, Pursche and McDevitt advise erring on the side of caution when investing in these fickle markets. Not only are emerging markets inherently more volatile and risky than developed markets, the number of investors piling into emerging market debt and world bond funds has driven up bond prices. "The cat's out of the bag," McDevitt says. "There are a lot of people with the same idea and none of the options are that great." Still, emerging markets and non-dollar denominated debt might end up being the lesser of two evils after the Fed completes its latest round of quantitative easing, especially if the dollar continues to weaken against foreign currencies.