The exchange-traded funds (ETFs) below offer diversified investment in European government bonds, with hedging in non-European countries, particularly Japan. ETFs are funds that contain many securities that usually track an underlying index, such as a bond or stock index.

European government bonds tend to carry more risk than U.S. government bonds, depending on market conditions and the health of the economies of European nations. In 2020, the coronavirus pandemic pushed the global economy into a recession, which led to central banks such as the Federal Reserve and the European Central Bank (ECB) to employ measures to support the markets and cut interest rates. Brexit is also affecting economies and cross-border relationships.

The anxiety and uncertainty surrounding the economic recession and potential recovery have led to increased investment flows into safe-haven assets, such as bonds, including European government bonds and U.S. Treasuries. As a result, bond prices in 2020 rose dramatically while bond yields fell to historic lows. 

Below are four of the top international government bond ETFs with a high allocation to European countries. The funds were selected based on long-term stability and assets under management.

All figures below are as of December 10, 2020.

Key Takeaways

  • ETFs offer diversification with European government bonds, with hedging in non-European countries, such as Japan.
  • European government bonds can carry more risk than U.S. government bonds, depending on the economic conditions in Europe.
  • The uncertainty surrounding the economic recession in 2020 has led to investment flows into safe-haven assets, such as bonds.

1. iShares International Treasury Bond (IGOV)

iShares International Treasury Bond (IGOV) is an ETF that holds bonds denominated in local currencies. IGOV tracks the S&P/Citigroup International Treasury Bond Index Ex-US. European countries represented in the fund’s holdings include Denmark, Sweden, Ireland, Norway, and France.

Holdings also include bonds from Japan, France, Italy, Germany, Finland, and the United Kingdom.

  • Price: $54.96
  • Average daily volume: 142,000
  • Assets under management: $1.1 billion 
  • Yield: -.10%
  • YTD return: 9.42%
  • Expense ratio: 0.35%

2. iShares 1-3 Year International Treasury Bond ETF (ISHG)

This iShares 1-3 Year International Treasury Bond ETF (ISHG) seeks to track the investment results of the S&P/Citigroup International Treasury Bond Index Ex-US 1-3 Year. Like the Index, it invests in international developed market Treasury bonds outside of the U.S. with maturities of one to three years. Its allocation includes government bonds from Japan, France, Italy, Germany, Belgium, Canada, and Australia.

  • Price: $84.22
  • Average daily volume: 4,934
  • Assets under management: $59 million 
  • Yield: -.30%
  • YTD return: 6.13%
  • Expense ratio: 0.35%

3. SPDR Bloomberg Barclays Short Term International Treasury Bond ETF (BWZ)

The SPDR Bloomberg Barclays Short Term International Treasury Bond ETF (BWZ) tracks the Bloomberg Barclays 1-3 Year Global Treasury Ex-US Capped Index. This fund focuses on securities that have maturities of one to three years. The holdings in this fund are denominated in local currencies. BWZ has exposure to South Korea, China, Japan, France, and Australia.

  • Price: $32.55
  • Average daily volume: 622
  • Assets under management: $250 million 
  • Yield: .11%
  • YTD return: 4.50%
  • Expense ratio: 0.35%

4. SPDR Bloomberg Barclays International Treasury Bond ETF (BWX)

The SPDR Bloomberg Barclays International Treasury Bond ETF (BWX) has significant European exposure and invests in emerging markets. BWX tracks the Bloomberg Barclays Global Treasury Ex-US Capped Index. It is important to note that all of the fund’s investments are denominated in local currencies. The ETF has exposure to China, South Korea, Indonesia, Denmark, Belgium, and Canada.

  • Price: $30.94
  • Average daily volume: 40,982
  • Assets under management: $1 billion 
  • Yield: .46%
  • YTD return: 7.43%
  • Expense ratio: 0.35%

The Bottom Line

European Treasury bonds are reporting some of the international Treasury market’s top returns. Investing in European government bonds is undoubtedly riskier than investing in U.S. government bonds. However, as economies and new cross-border relationships develop, there could be some decent returns available from these four ETFs.