Some the largest money managers are expecting European debt to outpace U.S. Treasuries ahead. Investors can also capitalize on potential fixed-income opportunities overseas with international bond exchange traded funds.
BlackRock, Pacific Investment management Co. and Prudential Financial Inc. all believe riskier peripheral European country debt will outperform as the European Central Bank extends its bond purchasing program, reports Eshe Nelson for Bloomberg.
Similar to what happened in the U.S. after the Federal Reserve’s quantitative easing policy, falling yields in fixed-income assets could push investors to riskier and higher-yielding assets in the Eurozone. In contrast, money managers are more pessimistic about U.S. Treasuries with the Fed normalizing interest rates ahead.
Observers anticipate that the tepid growth and deflationary pressures in the Eurozone could force the ECB to expand stimulus in 2016, which J.P. Morgan Chase & Co. will help Europe outperform the U.S., despite the myriad of debt problems that the region has faced.
“A lot of these credits that were feared to be disasters like the peripherals from Spain all the way down to Greece, had events for years and there’s going to be political and economic challenges going forward but those have been the best performers,” Robert Tipp, the chief investment strategist at the fixed-income unit of Prudential, told Bloomberg.
Investors can also gain exposure to European debt through international bond ETFs. For instance, the SPDR Barclays International Treasury Bond ETF (NYSEArca: BWX) includes 6.8% Italy, 6.5% France, 4.7% Netherlands, 4.7% Germany, 4.7% Belgium, 4.6% Spain, 3.4% Austria and 1.7% Ireland. The iShares International Treasury Bond ETF (NYSEArca: IGOV) includes 6.8% France, 6.5% Italy, 5.6% Germany, 5.0% Belgium, 4.9% Austria, 4.5% Portugal, 4.4% Spain, 4.4% Netherlands and 4.3% Ireland.