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Negative-yielding bonds have been soaring this year with central banks around the world re-adopting a loose monetary policy. Notably, the Bloomberg Barclays Global Aggregate Negative-Yielding Debt Index has increased by more than $3 trillion since its low five months back to $9.3 trillion, per the Bloomberg data. This is still below the all-time record of $12.2 trillion in June 2016.
Global Yields on Decline
The 10-year U.S. Treasury yields are close to their lowest level in about a year as the Fed is not in a hurry to raise rates this year. Japan’s yield has been in the negative territory over the past three months while 10-year yields on European bonds are also close to the negative territory. This situation suggests that investors around the globe are ready to pay governments to hold their bonds, a fresh sign that confidence in the global economy is fading.
The European Central Bank (ECB) last week cut its economic growth forecast for this year and pledged to hold off on any interest rate increases until at least the end of the year. It also announced new measures to support a slowing economy, including a round of long-term loans to European financial institutions (read: ECB Surprisingly Dovish: Play Currency-Hedged Euro Zone ETFs).
According to Reuters, the volume of Eurozone government bonds with negative yields reached a nine-month high in January of nearly €3 trillion ($3.4 trillion), or nearly 40% of the total value of all European government bonds on the Tradeweb platform. The 10-year yields of German, and French bonds sunk below 0.07% and 0.5%, respectively while that of Danish and Spanish declined to about 0.2% and 1.2%, respectively – all at two-year lows. Portugal's 10-year bond yield tumbled to a 20-year low at 1.35% while Italian yields have fallen to their lowest levels since the middle of last year. 10-year yields of German bunds are also on the brink of zero.
Further, the Reserve Bank of Australia has abandoned its rate hike guidance, pushing 10-year yields below 2%.
As yields are falling globally, investors with big holdings in the fixed income world could experience heavy gains, given that bond prices and yields have an inverse relationship. Below, we have highlighted some of the bond ETFs for them that could be excellent picks to tap the similar trend:
SPDR Bloomberg Barclays International Treasury Bond ETF (BWX - Free Report)
This ETF seeks to provide exposure to fixed-rate local currency sovereign debt of investment grade countries outside the United States by tracking the Bloomberg Barclays Global Treasury ex-US Capped Index. It holds 951 securities in its basket with Japanese bonds making up for 23% share while other countries account for less than 6% of assets. BWX has average maturity of 9.98 years while adjusted duration of 8.25 years. It has AUM of $1.1 billion and charges 35 bps in annual fees (read: 4 International Bond ETFs Win Despite Acute December Selloffs).
iShares International Treasury Bond ETF (IGOV - Free Report)
With AUM of $898.5 million, this fund also offers exposure to international bonds and follows the S&P International Sovereign Ex-U.S. Bond Index. It holds 675 securities in its basket with Japanese bonds taking the largest share at 22.8% while bonds from France, Italy, United Kingdom, Spain and Portugal round off the next spots. The ETF has average maturity of 10.28 years and adjusted duration of 8.50 years. It charges investors 35 bps in fees per year.
iShares 1-3 Year International Treasury Bond ETF (ISHG - Free Report)
This fund provides exposure to 99 short-term bonds issued by the governments of countries around the world (excluding the United States). It follows the S&P International Sovereign Ex-U.S. 1-3 Year Bond Index, charging 35 bps in annual fees. Effective duration and average maturity comes in at 1.75 years and 1.78 years, respectively. Japanese bonds take the largest share at 22.8% while Italy, France, Germany, Spain and many others receive single-digit allocation each. The fund has amassed $75 million in its asset base while charging 35 bps in annual fees.
iShares Core International Aggregate Bond ETF (IAGG - Free Report)
This ETF offers broad international exposure to investment grade bonds by tracking Bloomberg Barclays Global Aggregate ex USD 10% Issuer Capped (Hedged) Index. Holding 2,530 securities, it has effective duration of 7.34 years and average maturity of 8.91 years. IAGG is widely diversified across bonds of France, Japan, Germany, and the United Kingdom. It has amassed $1.2 billion and charges 9 bps in annual fees from investors (see: all the Developed Market Bond ETFs here).
SPDR Bloomberg Barclays Short Term International Treasury Bond ETF (BWZ - Free Report)
With $293.3 million in AUM, BWZ follows the Bloomberg Barclays 1-3 Year Global Treasury ex-US Capped Index, which consists of government bonds issued by investment grade countries outside the United States, in local currencies, that have a remaining maturity of one to three years and are rated investment grade. The fund has average maturity of 1.86 years and adjusted duration of 1.81 years. It has expense ratio of 0.35% and holds 199 securities in its basket with Japanese bonds making up for one-fourth of the portfolio.
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Declining Yields Make These Bond ETFs Attractive
Negative-yielding bonds have been soaring this year with central banks around the world re-adopting a loose monetary policy. Notably, the Bloomberg Barclays Global Aggregate Negative-Yielding Debt Index has increased by more than $3 trillion since its low five months back to $9.3 trillion, per the Bloomberg data. This is still below the all-time record of $12.2 trillion in June 2016.
Global Yields on Decline
The 10-year U.S. Treasury yields are close to their lowest level in about a year as the Fed is not in a hurry to raise rates this year. Japan’s yield has been in the negative territory over the past three months while 10-year yields on European bonds are also close to the negative territory. This situation suggests that investors around the globe are ready to pay governments to hold their bonds, a fresh sign that confidence in the global economy is fading.
The European Central Bank (ECB) last week cut its economic growth forecast for this year and pledged to hold off on any interest rate increases until at least the end of the year. It also announced new measures to support a slowing economy, including a round of long-term loans to European financial institutions (read: ECB Surprisingly Dovish: Play Currency-Hedged Euro Zone ETFs).
According to Reuters, the volume of Eurozone government bonds with negative yields reached a nine-month high in January of nearly €3 trillion ($3.4 trillion), or nearly 40% of the total value of all European government bonds on the Tradeweb platform. The 10-year yields of German, and French bonds sunk below 0.07% and 0.5%, respectively while that of Danish and Spanish declined to about 0.2% and 1.2%, respectively – all at two-year lows. Portugal's 10-year bond yield tumbled to a 20-year low at 1.35% while Italian yields have fallen to their lowest levels since the middle of last year. 10-year yields of German bunds are also on the brink of zero.
Further, the Reserve Bank of Australia has abandoned its rate hike guidance, pushing 10-year yields below 2%.
As yields are falling globally, investors with big holdings in the fixed income world could experience heavy gains, given that bond prices and yields have an inverse relationship. Below, we have highlighted some of the bond ETFs for them that could be excellent picks to tap the similar trend:
SPDR Bloomberg Barclays International Treasury Bond ETF (BWX - Free Report)
This ETF seeks to provide exposure to fixed-rate local currency sovereign debt of investment grade countries outside the United States by tracking the Bloomberg Barclays Global Treasury ex-US Capped Index. It holds 951 securities in its basket with Japanese bonds making up for 23% share while other countries account for less than 6% of assets. BWX has average maturity of 9.98 years while adjusted duration of 8.25 years. It has AUM of $1.1 billion and charges 35 bps in annual fees (read: 4 International Bond ETFs Win Despite Acute December Selloffs).
iShares International Treasury Bond ETF (IGOV - Free Report)
With AUM of $898.5 million, this fund also offers exposure to international bonds and follows the S&P International Sovereign Ex-U.S. Bond Index. It holds 675 securities in its basket with Japanese bonds taking the largest share at 22.8% while bonds from France, Italy, United Kingdom, Spain and Portugal round off the next spots. The ETF has average maturity of 10.28 years and adjusted duration of 8.50 years. It charges investors 35 bps in fees per year.
iShares 1-3 Year International Treasury Bond ETF (ISHG - Free Report)
This fund provides exposure to 99 short-term bonds issued by the governments of countries around the world (excluding the United States). It follows the S&P International Sovereign Ex-U.S. 1-3 Year Bond Index, charging 35 bps in annual fees. Effective duration and average maturity comes in at 1.75 years and 1.78 years, respectively. Japanese bonds take the largest share at 22.8% while Italy, France, Germany, Spain and many others receive single-digit allocation each. The fund has amassed $75 million in its asset base while charging 35 bps in annual fees.
iShares Core International Aggregate Bond ETF (IAGG - Free Report)
This ETF offers broad international exposure to investment grade bonds by tracking Bloomberg Barclays Global Aggregate ex USD 10% Issuer Capped (Hedged) Index. Holding 2,530 securities, it has effective duration of 7.34 years and average maturity of 8.91 years. IAGG is widely diversified across bonds of France, Japan, Germany, and the United Kingdom. It has amassed $1.2 billion and charges 9 bps in annual fees from investors (see: all the Developed Market Bond ETFs here).
SPDR Bloomberg Barclays Short Term International Treasury Bond ETF (BWZ - Free Report)
With $293.3 million in AUM, BWZ follows the Bloomberg Barclays 1-3 Year Global Treasury ex-US Capped Index, which consists of government bonds issued by investment grade countries outside the United States, in local currencies, that have a remaining maturity of one to three years and are rated investment grade. The fund has average maturity of 1.86 years and adjusted duration of 1.81 years. It has expense ratio of 0.35% and holds 199 securities in its basket with Japanese bonds making up for one-fourth of the portfolio.
Want key ETF info delivered straight to your inbox?
Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week. Get it free >>