Bonds showed their nature as a safe haven following the invasion of Russia into Ukraine. Investors sought the safety of the bond markets as uncertainty entered the stock market indexes, especially in the Eurozone and Germany in particular.
Amid rising global inflation and central banks looking to start implementing a tighter monetary policy, yields took an opposite turn higher, causing bond prices to rise. With regard to German bonds, the yield almost fell to a low not seen since the height of the pandemic in 2020.
“Euro zone bonds rallied on Thursday as investors rushed into safe assets after Russia’s all-out invasion of Ukraine sent European stock markets into a downward spiral,” Reuters reports.
“Germany’s 10-year yield, the benchmark for the euro area, fell as much as 10 basis points (bps) to its lowest level since the European Central Bank (ECB) on Feb. 3 opened the door to rate hikes this year,” the report adds further.
Stagflation, an economic condition where inflation is rampant and growth is slow, re-entered the minds of market analysts. This could force more investors to the safety of bonds while the Russian-Ukrainian crisis continues to play out.
“The conflict … takes us a sizeable step towards stagflation where we see higher prices but slower growth. It’s a significant continuation of a series of remarkably numerous unrelated negative supply (chain) shocks,” said Richard McGuire, head of rates strategy at Rabobank.
A Total Bond ETF With Germany Exposure
As currently constructed, the Vanguard Total World Bond ETF (BNDW) provides bond investors with a 30% allocation to European bonds — that includes a 5.6% allocation to bonds in Germany (as of January 31). BNDW, with its low 0.06% expense ratio, seeks to track the performance of the Bloomberg Global Aggregate Float Adjusted Composite Index, which measures the investment return of investment-grade U.S. bonds and investment-grade non-U.S. dollar-denominated bonds.
BNDW can be an ideal proposition for investors who want exposure to international debt markets without disregarding the United States bond market completely. In essence, the ETF provides more of a global aggregate bond fund that’s more all-inclusive.
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