Which Ex-U.S. Country Bond ETF Offers The Lowest Risk?

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Over the last several years, investors have witnessed central banks from around the world take unprecedented measures to recover from catastrophic financial crises. From the Fed’s prolific “quantitative easing” strategies to the Bank of Japan’s massive asset purchase program, the world’s most influential governments continue to stress easy money policies in an effort to lower yields and spur economic activity. And while the success of these programs is still under scrutiny, one thing for certain is that investors’ hunt for yield in the government bond market has become increasingly difficult [see Single Country ETFs: Everything Investors Need To Know].

As such, today’s near-zero interest rate environment in the U.S. has managed to deter many investors, but for those willing to dive into the global government bond market, there still may be some attractive opportunities:

Measuring Risk and Return in the Global Government Bond Market

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Government Bond ETFs

The chart below illustrates the differences between risk/return profiles between GermanAustralianCanadian Chinese and Japanese government bond ETFs. Note that the risk/return profile is defined by a fund’s 200-day volatility and trailing one-year return. The size of each bubble represents the yield on the corresponding 10-year government bond [see Ex-U.S. Portfolio]:

  • DB German Bund Futures ETN (BUNL, A-)
  • Australia & New Zealand Debt Fund (AUNZ, A-)
  • Canada Bond Index Fund (CAD, B+)
  • Chinese Yuan Dim Sum Bond Portfolio (DSUM, A)
  • DB Japanese Government Bond Futures ETN (JGBL, A-)
The Bottom Line

It is important to note that the chart above is based on trailing returns, and as such, its compositions are subject to changes over time. Out of all the government bond ETFs, DSUM currently offers the most attractive risk/return profile; its trailing 1-year return is over 10%, the 200-day volatility is 2.79%, and the 10-year Chinese government bond yield is at 3.45%. On the other hand, German and Japanese bonds (BUNL and JGBL) have struggled over the last year, offering little in terms of yield and exhibiting higher levels of risk.

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Disclosure: No positions at time of writing.

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