European Bonds Rallying as Lockdown Measures Ease

What a difference a healthy dose of governmental stimulus can make in the economy—just when it seemed like the European Union was in a world of trouble amid the coronavirus pandemic, its bonds are now rallying as global economies look to reopen.

Per a recent Wall Street Journal report, “European bank bonds have rallied over the past few weeks, escaping crisis territory thanks to the easing of coronavirus lockdowns and the proposed launch of a European Union-wide recovery fund. Yields on the riskiest type of junior bank debt have fallen back significantly from their peak level at the worst point in the coronavirus-inspired selloff across markets in mid-March, despite a small reversal in their recent rally Monday.”

“Bank spreads are now out of crisis territory, and most likely have further to tighten,” said Tom Kinmonth, fixed-income strategist at ABN Amro.

“However, the overall conditions for the European banking sector remain incredibly challenging,” he added.

One way that investors can get exposure to European bonds amid their rally is global debt exchange-traded funds (ETFs) that can offer this type of diversification. Investors looking for international corporate bond exposure can look to funds like the Invesco International Corporate Bond ETF (PICB). PCB seeks to track the investment results (before fees and expenses) of the S&P International Corporate Bond 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).

Another fund to look at for actively managed strategies is the Goldman Sachs ActiveBeta Europe Equity ETF (GSEU). The fund seeks to provide investment results that closely correspond to the performance of the Goldman Sachs ActiveBeta® Europe Equity 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, in depositary receipts representing securities included in its underlying index and in underlying stocks in respect of depositary receipts included in its underlying index. The index is designed to deliver exposure to equity securities of developed markets issuers in Europe.

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