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Inside the Germany ETF Sell-Off - ETF News And Commentary

Zacks Equity Research

Germany ETFs had a stellar start to this year but failed to hold on to those gains. The key German gauge DAX index entered the correction phase starting this week and retreated over 10% from April. This led the European stocks to log their most stretched-out spell of sell-offs this year, per Bloomberg.

In any case, corrections in German equities were in arrears after a prolonged bull run due to the launch of the QE measure by the ECB. Even after the steep sell-off, db X-trackers MSCI

Germany Hedged Equity Fund (
DBGR), the best performer in the Germany equities ETF space from a year-to-date look, returned over 11.5%.

Also, the nagging Greek debt deal also brought trouble for the German assets. Wobbly investors are now focusing more on profit booking before anything worse happens to the fate of the common currency Euro. Though such chances are low, little progress in the Monday meeting over Greece’s bailout program sent shockwaves to investors.

Greece has held up its debt payments of 303.3 million euros to the International Monetary Fund (IMF), which was due on June 5. Instead, the IMF chief spokesman said that Greece plans “to bundle the country's four June payments into one, which is now due on June 30.”
In the meantime, Greece’s creditors have proposed for stricter austerities like pension cuts, tax increases and other policies (which need to be put into practice by Athens) in return for a bailout program until the end of March 2016.

A conflict between Athens and its creditors will find a compulsory retreat of Greece from the Euro zone which in turn will see other Euro zone countries from Malta to Greece’s biggest creditor – Germany – in dire straits (read: Will Recent Strong Gains in the Greek ETF Last?).

Among the major losers, DBGR, Currency Hedged MSCI Germany ETF (HEWG), Germany Hedged Equity Fund (DXGE) and MSCI Germany Small Cap Index Fund (EWGS) deserve special mention. While DBGR lost the maximum by 3.50%, HEWG was off 3.49%, DXGE lost 3.36% and EWGS retreated 2.76% in the last one week (as of June 9, 2015) (read: 3 Best Performing ETF Sectors of Q1 2015).

Bond Market Gasps too

The situation was no different in the German fixed income market either. The yield on 10-year German government bonds rose to 1%, which is almost a nine-month high. Investors should note that the same bond yields were almost zero percent only a few days back.

Reduced fears of deflation in the Euro zone might have led the bondholders to ask for higher yields. Notably, the Euro zone recorded a six-month high inflation in May at 0.3%. So, a spike in yield is somewhat self explanatory. This, along with Greek worries led to the anxiety in the market (read: Guide to European Bond ETF Investing).

Over the last five trading sessions (as of June 9, 2015), DB German Bund Futures ETN (BUNL) lost 3.2% and is down over 4.6% year to date.
 
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DEUTS-XT MS GER (DBGR): ETF Research Reports
 
ISHA-CH MS GERM (HEWG): ETF Research Reports
 
WISDMTR-GER HEF (DXGE): ETF Research Reports
 
ISHARS-MS GRMSC (EWGS): ETF Research Reports
 
DB GBF (BUNL): ETF Research Reports
 
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