Bond fund giant PIMCO continued the string of impressive innovation that has produced a robust lineup of international bond ETFs this week, rolling out a pair of new funds focusing on fixed income securities from German and Canadian issuers. The two new ETFs, both of which are indexed products, join an Australian bond ETF that the firm rolled out last week. The new ETFs are:
- PIMCO Germany Bond Index Fund (BUND): This ETF will seek to replicate the BofA Merrill Lynch Diversified Germany Bond Index, a benchmark that includes euro-denominated bonds of governments and corporations in Germany [see the BUND fact sheet].
- PIMCO Canada Bond Index Fund (CAD): This ETF will be linked to the BofA Merrill Lynch Diversified Canada Government Bond Index, a benchmark that includes investment grade bonds denominated in Canadian dollars and issued by Canadian governments [see the CAD fact sheet].
Both new ETFs will charge a management fee of 0.45%, roughly in line with other international bond ETFs.
The two new funds from PIMCO reflect a growing interest among U.S. investors in achieving exposure to international bond markets, particularly in economies that are on relatively stable fiscal footing and that can offer meaningful yields. With interest rates in the U.S. continuing to hover close to zero, many investors are looking overseas for opportunities to enhance current returns.
German Bond ETFs
BUND is the first ETF to offer access to German bond markets, but not the first exchange-traded product to tap into this corner of the European fixed income market. The PowerShares DB German Bund Futures ETN (BUNL) is an exchange-traded note linked to an index comprised of futures contracts on intermediate term German debt. There’s also a 3x monthly leveraged version (BUNT) linked to the same index.
Bonds issued by the German government are generally used as the standard for low risk European debt; many investors watch the spreads between debt of other economies relative to German debt as an indication of credit risk prices in. As the yields on ten-year Italian bonds have recently crept past 7%, German bonds of the same maturity are yielding only about 1.7%. That significant gap highlights the confidence of investors in German debt markets.
CAD is the first ETF to focus exclusively on Canadian debt, though Global X offers a Canada Preferred ETF (CNPF) that includes preferred stock issued by Canadian companies (primarily banks). Thanks to an abundance of natural resources, Canada’s economy has been relatively stable in recent years, making the neighbor to the north a potentially attractive destination for those looking to achieve some dollar diversification. Similar to the U.S., Canada’s interest rates are low in the current environment, meaning that yields on CAD likely won’t be too impressive.
Last week PIMCO launched an Australia Bond ETF (AUD); the launch of products focused on Germany and Canada gives the company a lineup of country-specific bond funds for investors looking to tap into “safe” economies. A number of international bond ETFs have popped up over the last year or so, including a wave of three China bond ETFs that debuted recently. Most other international bond ETFs are regional products, focusing on debt from multiple countries.
Disclosure: No positions at time of writing.