ETFs

Three International Bond ETFs Worth A Look

As fear continues to take its toll on Wall Street, U.S. debt continues to balloon and economic indicators continue to disappoint, investing in bonds of low-debt nations may be appealing.

What is most alarming of all is the U.S. debt.  Currently, U.S. debt is north of $13 trillion and nearly 89% of GDP.  As for the future, the International Monetary Fund expects the debt to GDP ratio to soar north of 100% at current spending levels. 

With economic indicators failing to suggest that the economy is in a sustainable recovery mode, such as a decline in new manufacturing orders, a decline in construction spending , declines in consumer confidence, decreases in pending home sales and increases in initial jobless claims, the likelihood that government spending will remain elevated is high. 

To overcome the U.S.’s fragile economy and ballooning debt, nations that are less levered than the U.S. could be the answer.  Some notable nations include Canada, which has a debt-to-GDP ratio of 32%, Norway, who is actually a net creditor and runs a budget surplus, Brazil, which is rich in natural resources and implements tight control over its monetary instruments enabling the nation to maintain relatively low debt ratios, and Russia, who has managed its debt relatively well and is expected to have a debt-to-GDP ratio of around 9%.

Some easy ways to gain access to the bonds of these nations include the following:

  • iShares JPMorgan USD Emerg Markets Bond (EMB), which holds debt of both Russia and Brazil.  EMB boasts a yield of 5.36% and closed at $103.25 on Thursday.
  • PowerShares Emerging Mkts Sovereign Debt (PCY), which also gives exposure to Russian and Brazilian debt.  PCY boasts a yield of 6.37% and closed at $26.09 on Thursday.
  • iShares S&P/Citi 1-3 Yr Intl Treasury Bd (ISHG), which focuses on the debt of developed nations and gives exposure to the debt of both Canada and Norway.  ISHG boasts a yield of 1.23% and closed at $96.94 on Thursday.

When investing in these international bond ETFs it is equally important to consider the inherent risks that are involved.  A good way to mitigate these risks is through the use of an exit strategy which identifies specific price points at which downward price pressure is likely to be seen.

According to the latest data at www.SmartStops.net, the price points are as follows: EMB at $102.65; PCY at $25.89; ISHG at $94.21.  These price points change on a daily basis and are reflective of market volatility.

Disclosure: Long PCY

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