International bond exchange traded funds with European exposure could advance as the European Central Bank could be forced to pay a premium on bond purchases and lift prices on all Eurozone debt in response to the lack of supply.
While there are no Europe-focused bond ETFs available, investors can gain exposure to the region through broader international fixed-income ETFs. For example, the SPDR Barclays International Treasury Bond ETF (NYSEArca: BWX) includes U.K. 7.9%, Italy 6.6%, France 6.5%, Germany 5.2%, Belgium 4.6%, Spain 4.7%, Netherlands 4.6% and Austria 3.5%, among others. The iShares International Treasury Bond ETF (NYSEArca: IGOV) includes Italy 7.3%, France 6.7%, U.K. 5.8%, Germany 5.8%, Belgium 4.6%, Ireland 4.6%, Spain 4.7%, Austria 4.3% and Netherlands 4.5%.
Additionally, the Vanguard Total International Bond ETF (NYSEArca: BNDX) provides broad exposure to international debt, including foreign investment-grade government, corporate and securitized debt while hedging currency exposure, which can diminish volatility attributed to the Forex risks. BNDX also includes a 47.2% tilt toward European countries.
The ECB has enacted a 1 trillion euro bond purchasing program, but analysts are skeptical about the ECB’s chances of actually meeting the supply as investors are unwilling or unable to sell top-rated government bonds, notably German debt, reports Christopher Whittall for the Wall Street Journal.
“It will be challenging for the ECB to source enough government bonds to meet its QE targets,” Anthony O’Brien, co-head of European rates strategy at Morgan Stanley, said in the WSJ article.
The ECB is scheduled to acquire €60 billion, or $68 billion, in debt securities each month until September 2016. Bond purchases will depend on each contry’s share of the Eurozone’s population and gross domestic product, so Germany will make up a large portion of the quantitative easing program at about a quarter of the purchases or €12 billion each month. [Bond ETFs to Capitalize on ECB Easing]