The European Central Bank is expanding its quantitative easing program to include corporate debt as a way to stimulate its economy. As demand for Eurozone debt rises, investors can look to international corporate bond exchange traded funds to capitalize on the momentum.
The accommodative measures, bond purchasing programs and and even negative interest rate policies have helped support the international bond market. In a bid to bolster their flagging economies, many developed economies have implemented unconventional monetary policies, such as negative interest rates out of the European Central Bank and the Bank of Japan, which triggered a rally in global fixed-income markets. Now, the amount of global sovereign debt with negative yields has surpassed $10 trillion for the first time, according to Fitch Ratings – bond prices and yields have an inverse relationship, so falling yields correspond with rising prices.
The loose monetary policies have been a boon for international government bonds and related ETFs. For example, the SPDR Barclays International Treasury Bond ETF (NYSEArca: BWX) increased 7.5% and iShares Core International Aggregate Bond ETF (NYSEArca: IAGG) gained 4.2% year-to-date while the iShares Core U.S. Aggregate Bond ETF (NYSEArca: AGG), which tracks the benchmark Barclays Aggregate Bond Index, rose 3.5%.
Looking ahead, investors may find opportunities in international corporate bond-related ETFs, which also include a heavy tilt toward European debt, as the ECB extends its bond purchasing program to include investment-grade corporate issues.
The ECB has revealed on June 8 it will start acquiring euro-denominated investment-grade bonds with maturities of over six months and up to 30 years from companies incorporated within the Eurozone. The central bank also said that it is not required to sell its holdings in the event of a downgrade to junk, which would extend its group of covered bonds to so-called fallen angels.
Moreover, 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.
While the ECB has not 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.[related_stories]