The U.S. Federal Reserve is doing all it can to keep the bond market afloat and now the European Union appears it will mirror these moves. As such, it’s increasing bond investors’ appetite for risk.
Per a Wall Street Journal report, the European Union “proposed borrowing 750 billion euros ($821.6 billion) from capital markets to offer grants and loans to the most beleaguered nations following the coronavirus pandemic. The new program—which isn’t sure to secure the approval of all 27 EU members—could see the introduction of a common European bond, backed by all the states.”
“Investors’ appetite for riskier assets climbed following the announcement. Bonds from southern Europe’s debt-laden countries, which have been among the hardest-hit by the pandemic, rallied: The yield on Italy’s 10-year bonds dropped to 1.522%, the lowest since the beginning of April. Yields on Spanish and Greek debt dropped to their lowest since March,” the report added further.
“It’s really adding a new, very important tool to the tool kit,” said Samy Chaar, chief economist at Lombard Odier.
For the ETF) investor, they may want to keep an eye on Europe-focused funds. Here are three funds to check out
- Vanguard FTSE Europe Index Fund ETF Shares (NYSEArca: VGK): seeks to track the performance of a benchmark index that measures the investment return of stocks issued by companies located in the major markets of Europe. The fund employs an indexing investment approach by investing all, or substantially all, of its assets in the common stocks included in the FTSE Developed Europe All Cap Index.
- iShares MSCI Eurozone ETF (BATS: EZU): seeks to track the investment results of the MSCI EMU Index composed of large- and mid-capitalization equities from developed market countries that use the euro as their official currency. The index consists of stocks from the following 10 developed market countries: Austria, Belgium, Finland, France, Germany, Ireland, Italy, the Netherlands, Portugal, and Spain.
- iShares Core MSCI Europe ETF (NYSEArca: IEUR): seeks to track the investment results of the MSCI Europe IMI. The index is a free float-adjusted market capitalization-weighted index which consists of securities from the following 15 developed market countries or regions: Austria, Belgium, Denmark, Finland, France, Germany, Ireland, Italy, the Netherlands, Norway, Portugal, Spain, Sweden, Switzerland, and the United Kingdom.
Accessing U.S. Corporate Bonds
Back in the U.S., with the Federal Reserve stepping in to purchase corporate bonds to help keep the economy afloat, one ETF to consider is the Goldman Sachs Access Investment Grade Corporate Bond ETF (GIGB). GIGB seeks to provide investment results that closely correspond to the performance of the FTSE Goldman Sachs Investment Grade Corporate Bond Index.
The fund seeks to achieve its investment objective by investing at least 80% of its assets (exclusive of collateral held from securities lending) in securities included in its underlying index. The index is a rules-based index that is designed to measure the performance of investment grade, corporate bonds denominated in U.S. dollars that meet certain liquidity and fundamental screening criteria.
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