International corporate bond exchange traded funds could see yields further decline, with investment-grade European corporate debt yields on the verge of crossing into negative territory.
For instance, the PowerShares International Corporate Bond Portfolio (PICB) and the SPDR Barclays International Corporate Bond ETF (IBND) , have seen 30-day sec yields dip to 1.3% and 0.42%, respectively.
After the European Central Bank enacted its aggressive stimulus plan, Royal Dutch Shell Plc, Procter & Gamble Co. and Sanofi are seeing borrowing costs teeter toward negative territory, reports Sally Bakewell for Bloomberg.
Both PICB and IBND hold broad exposure to investment-grade international corporate debt. PICB tracks 377 debt securities and includes some exposure to Sanofi and Shell. IBND also includes exposure to Sanofi and Shell, and includes 542 holdings.
According to Bank of America Merrill Lynch data, the European borrowers’ securities are among the first corporate bonds in the region to see yields trade below 0.1%. For instance, Shell’s securities maturing in February 2016 are trading at a record-low yield of 0.0399%. [ETF Options to Capitalize on a Yield-Starved Europe]
“The ECB has created a black hole in bond markets,” Societe Generale SA analysts said. “There lies the challenge for investors: position to benefit from QE, but avoiding assets which are too expensive or too weak.”
Meanwhile, ongoing deflationary pressures and growth concerns are keeping investors in safe, high-quality assets, which have pushed down bond yields even further.
“We’re going to see more and more bonds yield less and less,” Juan Esteban Valencia, credit strategist at Societe Generale, said in the article. “Very poor growth in the economy, fear of deflation and high unemployment have caused a flight to safety and eventually compression that has made every other sovereign drop a lot. Everything else has been dragged down.”
PowerShares International Corporate Bond Portfolio
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Max Chen contributed to this article.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.