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International Treasury ETFs: Winners Amid Gloom

Zacks Equity Research

Recent developments in the domestic and global markets have led to a rise in volatility across all asset classes. None of the economies around the world are looking up with the most developed economies facing recessionary threats. The U.S. is also losing momentum and the emerging economies, mainly China, is facing hard-landing fears.


Developed market inflation remains abysmally low while emerging markets, normally known for sky-high inflation, have also been seeing price level abating. The major reason behind this weakening in price level goes to the energy sector rout as crude prices lost around 75% in the last two years. Moreover, most of the commodities are slouching on lower global demand and ample supplies (read: How to Play Oil ETFs Now?).


Central banks across the board are striving to beef up asset values, charge up their sagging economies and boost inflation. Following the European Central Bank, Bank of Japan recently introduced negative interest rates. A reduction in rates would spur activities in economy which in turn should translate into higher growth (read: 4 Global ETFs to Outperform in Q1).


All these sparked-off a rally in international treasuries and the related ETFs. First, risk-off trade has led investors to flee the risky asset classes and seek solace in the so-called safer bond segment and then rock-bottom interest rates dragged down the Treasury bond yields giving a push to their prices.

Yields on Decline

Yields on Japan's benchmark 10-year government bond recently slid to below zero (negative 0.007%) for the first time. The dropdown in yields mainly came in the wake of a negative interest rate policy adopted by BoJ. In fact BoJ chief indicated a slash in the Japanese interest rates – deeper into the negative territory if needed.

However, as investors rushed toward a safe refuge following global market sell-off on February 8, which was triggered by the European banks’ sell-off, global government bonds came under the spotlight (read: January ETF Asset Report: Safe Havens Rule).

The 10-year German and U.S. government bond yields also slid to multi-month levels lately. The benchmark U.S. treasury yields fell to as low as 1.75% on February 8, 2016, down 49 bps from the start of this year (read: Time for These Buy-Ranked Treasury Bond ETFs).

More than $7 trillion of government bonds – accounting for 29% of the Bloomberg Global Developed Sovereign Bond Index – offered negative yields globally as of February 8, 2016. If the trend of negative interest rates continues, the negative-yielding bonds load is likely to increase.


Given this, the International Treasury ETFs could provide investors with an opportunity of capital gains and safer bids.


ProShares German Sovereign/Sub-Sovereign (GGOV)


The fund looks to track the performance of the Markit iBoxx EUR Germany Sovereign & Sub-Sovereign Liquid Index. The fund has a weighted average maturity of 5.86 years and a modified duration of 5.52 years. It charges 45 bps in fees and yields 0.17%. The fund is up 4.6% so far this year (as of February 8, 2016).

SPDR Barclays Capital International Treasury Bond ETF (BWX)

BWX measures the performance of investment grade sovereign debt securities located outside the U.S. The ETF targets the longer end of the yield curve and has an average maturity of 9.48 years. The ETF is more sensitive to interest rate movements as indicated by an average duration of 7.77 years. From a holdings perspective, BWX allocates 23.32% of its total assets in the Japanese Government bonds. The fund allocates more than half of its assets in European nations. BWX is up 3.3% in the year-to-date frame.

iShares S&P/Citigroup International Treasury Bond (IGOV)

The ETF tracks the S&P/Citigroup International Treasury Bond Index Ex-US which measures the performance of foreign currency denominated treasury bonds issued by developed countries other than the U.S.

Like BWX, IGOV also mostly places its bets on the Japanese government bonds which account for almost 22.6% of its total assets. The ETF has a weighted average maturity of 9.44 years and effective duration of 7.66 years. IGOV yields 0.1% annually and has added 4.3% so far this year (as of February 8, 2016).

iShares S&P/Citigroup 1-3 Yr International Treasury Bond ETF (ISHG)

This product targets the shorter part of the yield curve. Its weighted average maturity is 1.74 years and effective duration is 1.71 years. From a weightings perspective, the ETF holds 23.08% in Japanese short-term bonds and around 65% in the European nations’ near-dated securities. ISHG yields 0.09% annually and has added 2.6% so far this year (as of February 8, 2016).

 DB 3x Japanese Govt Bond Futures ETN (JGBT)

JGBT focuses on the triple-leverage performance of a long position in the 10-year Japanese Government Bond Futures. The assets of 10-year JGB Futures are Japan-government issued debt securities with a remaining term to maturity of not less than 7 years and not more than 11 years as of their date of issue and the futures contract delivery date. The fund is up 7.2% so far this year (see: all  leveraged bond ETFs here).

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PRO-GRMN SOV/SS (GGOV): ETF Research Reports
SPDR-BC INTL TR (BWX): ETF Research Reports
ISHARS-IN TB (IGOV): ETF Research Reports
ISHARS-1-3Y INT (ISHG): ETF Research Reports
DB 3XJGBF (JGBT): ETF Research Reports
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