Fixed-income investors may want to diversify into international corporate bond exchange traded funds that have large Eurozone exposure as the European Central Bank expands its bond purchasing program to include corporate debt.
The ECB will be hoarding euro-denominated investment-grade bonds with maturities of over six months and up to 30 years from companies incorporated within the Eurozone, reports Gavin Jackson for the Financial Times.
The ECB has said it will be “market neutral” in in purchases, and negative-yielding bonds may be included as long as the yield is above the central bank’s -0.4% deposit rates. Belgium, Germany, Spain, Finland, France and Italy central banks will acquire corporate debt through both primary and secondary markets.
While the ECB has not explicitly stated how much they are going to acquire, analysts project asset purchases to be between five and ten billion euros per month. At the March meeting, ECB President Mario Draghi announced the bond purchasing program will increase to €80 billion from €60 billion.
Looking ahead, Eurozone bond yields will likely go even lower due to the increased buying pressure. While there are no Europe-focused speculative-grade debt ETFs on the market, U.S. investors can still gain exposure to European bonds through international bond ETFs with heavy tilts toward European countries.
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The funds also include a heavy tilt toward European bonds. For instance, PICB holds 23.1% U.K., 18.8 France, 8.9% Germany, 6.9% Italy, 6.2% Netherlands, 4.7% Spain, 3.5% Switzerland and 2.7% Sweden.
IBND includes 15.0% France, 12.6% U.K., 10.9% Germany, 7.7% Netherlands, 7.2% Italy, 5.3% Spain, 5.0% Switzerland, 3.0% Sweden, 2.2% Belgium, 0.6% Denmark, 0.6% Norway and 0.2% Portugal.
Additionally, with yields falling, Eurozone investors may turn to riskier speculative-grade debt to meet their income needs, bolstering the high-yield market. U.S. investors can also gain exposure to speculative-grade European corporate debt through international ETF options as well.
For instance, the VanEck Vectors International High Yield Bond ETF (IHY) includes a 15.6% exposure to U.K., 9.0% Italy, 6.0% Germany, 6.7% France, 3.8% Luxembourg, 2.4% Spain, 1.4% Liechtenstein, 1.4% Switzerland and 1.9% Netherlands.
The SPDR Barclays International High Yield Bond ETF (IJNK) top European country weights include U.K. 16.5%, Italy 13.6%, France 9.9%, Germany 8.9%, Luxembourg 8.3% and Netherlands 4.1%.
Top country holdings in the iShares International High Yield Bond ETF (HYXU) include Italy 22.5%, Germany 13.6%, U.K. 15.9%, France 9.8%, Luxembourg 5.3% and Spain 5.2%.
For more information on the fixed-income market, visit our bond ETFs category.