ECB Bond Buying Could Put International Bond ETFs in Play

It was only a matter of time before other central banks around the world would follow the U.S. Federal Reserve’s plan of shoring up the bond market with debt purchases. Now, the European Central Bank is looking to take its bond-buying to another level with an additional $1.12 trillion over the next two to three years, according to CNBC report.

Earlier this month, the ECB “increased its Pandemic Emergency Purchase Programme (PEPP) by 600 billion euros to a total of 1.35 trillion euros in a bid to shore up the economy against the fallout from the coronavirus pandemic,” according to the CNBC report. The U.S. Federal Reserve did its part in shoring up the bond markets with purchases of exchange-traded funds (ETFs) and later, individual debt issues.

 “Linking the PEPP increase to the inflation downgrade is a clear sign that the ECB has shifted its focus from short-term crisis management towards supporting the economic recovery over the medium term,” Berenberg European Economist Florian Hense. “It has managed to stabilize markets very effectively, but returning to the ‘pre-Covid inflation path’ is a different matter, though – and one that will take effort and time.”

European Debt Exposure via ETFs

Investors looking to gain exposure to European debt can look at these pair of ETFs:

  1. Invesco International Corporate Bond ETF (PICB): seeks to track the investment results (before fees and expenses) of the S&P International Corporate Bond Index® (the “underlying index”). The fund generally will invest at least 80% of its total assets in investment grade corporate bonds that comprise the underlying index. The underlying index measures the performance of investment grade corporate bonds issued in the following currencies of Group of Ten countries, excluding the U.S. Dollar (USD): Australian Dollar (AUD), British Pound (GBP), Canadian Dollar (CAD), Euro (EUR), Japanese Yen (JPY), New Zealand Dollar (NZD), Norwegian Krone (NOK), Swedish Krona (SEK) and Swiss Franc (SFR).
  2. iShares International Treasury Bond ETF (IGOV): seeks to track the investment results of the S&P International Sovereign Ex-U.S. Bond Index. The fund generally will invest at least 90% of its assets in the component securities of the underlying index and may invest up to 10% of its assets in certain futures, options and swap contracts, cash and cash equivalents. The underlying index is a broad, diverse, market value-weighted index designed to measure the performance of bonds denominated in local currencies and issued by foreign governments in developed market countries outside the U.S.

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