Global central banks have cut interest rates to near zero, with some pushing into negative territory. As yield-starved global investors seek alternative avenues of income, more may turn to relatively more attractive U.S. government debt, supporting U.S. Treasuries-related exchange traded funds (ETFs).
For instance, after the Bank of Japan implemented negative interest rates, BlackRock’s fixed-income ETFs have attracted $1 billion in assets, Bloomberg reports.
“We have seen a significant amount of inflow into our global fixed income ETFs from Japanese institutions,” Jason Miller, head of the ETF unit in Tokyo at BlackRock, told Bloomberg. “The underpinning of that trend has been the natural shift from large institutions out of JGBs into the global fixed income exposures and equities. It’s accelerated by the negative interest rate.”
Japanese investors have hoarded a record $46 billion in U.S. Treasuries in March alone after yields on over 70% of local government bonds dipped below zero. Even accounting for a strengthening yen currency or weakening U.S. dollar, U.S. 10-year Treasuries have higher yields than the longest yen sovereign notes.
Yields on benchmark 10-year U.S. Treasuries are hovering around 1.71%. In contrast, yields on 30-year Japanese Government Bonds were at 0.34%, and the JGB 10-year note yields a negative 0.12%.
The low yields overseas may continue increase demand for relatively higher yielding U.S. Treasuries and help support related ETFs. For instance, the iShares 7-10 Year Treasury Bond ETF (NYSEArca: IEF) has a 7.57 year duration and a 1.58% 30-day SEC yield.[related_stories]