A Bond ETF for the World’s Diverging Monetary Policies

“Both the Bank of England and the Fed are likely to begin normalizing their monetary policies at different times in the coming eighteen months. The inevitability of the two central banks’ upward adjustment of credit costs will proceed to generate considerable nervousness. Consequently, corporate and government bonds of long duration will probably be the most profoundly rattled sector of the fixed income markets. In preparation for this eventuality, we recommend highly diversified sovereign exposures of short duration, corporate positions in low- and high-quality paper and the retention of a short-duration fixed income profile for the foreseeable future,” said S&P Capital IQ in the note.

BWZ features no exposure to New Zealand debt, which has helped the ETF remain firm in the face of two rate RBNZ rate hikes this year. Other rate cutters in the ETF include Mexico and Sweden and there has been talk Norway will be forced to follow suit with Sweden. Those countries combine for almost 5% of BWZ. [Norway ETFs Could Get Rate Hike Lift]

The ETF, which charges 0.35% per year, allocates a combined 84.7% of its weight to bonds rate AAA or AA. BWZ’s 30-day SEC yield is 0.55%.

SPDR Barclays Short Term International Treasury Bond ETF