You're missing the hedge return in the international bond fund. When you hedge let's say Euros to USD with 1-month forward contracts like the fund does, you agree to get X dollars for Y Euros in a month. That ratio of X/Y is

**not** the current exchange rate (spot). If you think about it, short-term interest rates are higher here, and over a month you could for example just invest in a 4-week Treasury bill and earn about 1%, while you'd get negative over there. So naturally we get a discount on the exchange rate we're locking in, to account for this discrepancy in short-term rates that is current and expected over the period. Otherwise, there'd be some easy ways to make money on these kinds of transactions.

US short-term rates are higher than in most of the countries that the international bond fund invests in, hence the fund receives what's currently a positive hedge return from hedging the FX exposure. This is not included in the yield figures such as SEC yield.

Check this Vanguard piece for some info:

https://personal.vanguard.com/pdf/ISGHC.pdf
As such the difference is not as large as it seems at first glance. Under some further assumptions maybe the expected return is close to equivalent given the starting conditions.

Now, even if you don't hedge the FX exposure, based on expected inflation and changes in exchange rates, the expected returns may again be closer than you are implying. You can read about uncovered and covered interest rate parity.