Needless to say, it’s been a tricky bond market for even safer haven U.S. bonds. As such, it can help fixed income investors to get exposure to other parts of the world that might be experiencing strength or offering value relative to price.
One of those areas of value is European bonds of investment-grade rating. Downward pressure on bond prices due to rising yields has made these bonds attractive.
“The best values often emerge from the deepest crises,” a Dividend.com article said. “Europe’s investment-grade bond market is seeing its worst decline in decades—exceeding both the COVID-19 pandemic and the 2008 financial crisis. According to Bloomberg, an index of European investment-grade debt fell 12.9% over the past 12 months, pushing yields from 2.9% to 3.4%.”
Of course, the economic factors affecting U.S. bonds also apply to European bonds. Aggressive rate hikes by central banks could lead to a recession, which could in turn allow for bond prices to rise thanks to central bank brake pumping on raising rates.
“Meanwhile, the European Central Bank is walking a fine line between raising interest rates to combat inflation, avoiding a potential recession, and managing costs for indebted economies,” the article added. “If the economy slows too quickly, the central bank could pause its interest rate hikes or even reverse them, providing a boost to bond markets.”
A Comprehensive Option for International Bond Exposure
As of May 31, the Vanguard Total International Bond Index Fund ETF Shares (BNDX) has a 55% exposure to the European debt market. The fund, which provides a comprehensive option for international bond exposure, comes with a low expense ratio of just 0.07%.
BNDX seeks to track the performance of a benchmark index that measures the investment return of non-U.S. dollar-denominated investment-grade bonds. International bonds can provide a diversification tool for fixed income investors looking to supplement their current core portfolios.
The ETF employs an indexing investment approach designed to track the performance of the Bloomberg Global Aggregate ex-USD Float Adjusted RIC Capped Index (USD Hedged), which provides a broad-based measure of the global, investment-grade, fixed-rate debt markets.
For more news, information, and strategy, visit the Fixed Income Channel.