German bond-related exchange traded products are strengthening, with benchmark German bund yields dipping to record lows, as the European Central Bank expanded its bond purchasing program, pressuring yields on fixed-income assets across the board.
Year-to-date, the DB German Bond Futures ETN (NYSE Arca: BUNL), which tracks the DB USD Bund Futures Index, rose 41.5% and the leveraged DB 3x German Bond Futures ETN (NYSE Arca: BUNT), which tries to reflect the three times or 300% daily performance of the German bonds, gained 19.9%.
The outperformance of BUNL may reflect the huge demand for the investment product as the ETN currently trades at a 42.4% premium to its net asset value, whereas BUNT is trading at a -2.6% discount to its NAV, according to Morningstar data. ETNs may experience steep premiums to their NAV if the issuer suspends creations of ETN shares.
Additionally, the ProShares German Sovereign/Sub-Sovereign ETF (NYSEArca: GGOV), which is comprised of investment-grade sovereign or sub-sovereign bonds, excluding corporate debt, increased 6.5% year-to-date.
[related_stories]German bonds continued to strengthen Friday, with yields on benchmark 10-year German bunds hitting fresh record lows of 0.011%, compared to 0.6% at the end of last year, reports reports Min Zeng for the Wall Street Journal.
Related: ECB Buying Spree Helps Lift U.S. Corporate Bond ETFs
As part of its expanded stimulus program, the ECB increased bond purchases, increasing demand for the benchmark debt and further pressuring yields.
Looking ahead, some market observers warn that yields could fall even further if demand for safe-haven bets, like German bunds, increase in the event of the United Kingdom’s so-called Brexit referendum on June 23, which could cause the U.K. to break away from the European Union.
Related: Rising Foreign Demand Could Support Corporate Bond ETFs
“Ten-year Bund yields could be negative very soon,” Ciaran O’Hagan, strategist at Societe Generale, told Reuters.
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DB German Bond Futures ETN