FISCHER BLACK AND ROBERT LITTERMAN nvestors create global bond portfolios for a variety of reasons: to diversify interest rate risk, to manage yield, to control exposure to foreign currencies, and to enlarge the universe of possible trading opportunities. This article describes a new approach to international asset allocation of fured-income securities. We show how to construct portfolios by choosing the optimal weights to invest in assets in each country and the optimal degree of hedging of currency exposure, given the investor's views for interest rates and exchange rates. While our approach brings several new features to the traditional asset allocation problem, its most innovative contribution is to allow investors to compare their outlook for currencies and interest rates with expected returns generated by an International Capital Asset Pricing Model (ICAPM) equilibrium. The simple idea that expected returns ought to be consistent with market equilibrium, except to the extent that the investor explicitly states otherwise, turns out to be of critical importance in making practical use of the model. In particular, it allows investors to specifj views in a much more flexible way than otherwise would be permitted.