Invesco unveils Europe’s cheapest long-term US Treasury ETF

Oct 19th, 2022 | By | Category: Fixed Income

Invesco has broadened its Treasuries suite with the launch of Europe’s cheapest ETF targeting US government bonds at the far end of the yield curve.

Paul Syms, Head of EMEA ETF Fixed Income Product Management at Invesco.

Paul Syms, Head of EMEA Fixed Income ETF Product Management at Invesco.

The Invesco US Treasury Bond 10+ Year UCITS ETF has been listed on London Stock Exchange in US dollars (TREL LN) and pound sterling (TRLX LN), on SIX Swiss Exchange in US dollars (TREL SW), and on Xetra (TRDL GY) and Borsa Italiana (TREL IM) in euros.

The fund comes with an expense ratio of just 0.06%.

The ETF is linked to the Bloomberg US Long Treasury Index which consists of US dollar-denominated, fixed-rate, nominal debt issued by the US Treasury with maturities greater than ten years.

Treasury bills, inflation-linked bonds, floating-rate bonds, and STRIPs are not eligible for inclusion.

Constituents are weighted by market value, and the index is reconstituted and rebalanced on a monthly basis.

As of the end of September, the index was yielding 4.00% with an effective duration of 16.35 years.

The index has posted a massive negative total return of 28.8% year-to-date, by far the largest loss in its history. Debt markets globally have been battered in 2022 as central banks have raised interest rates at a rapid speed in a bid to cool runaway inflation.

Bonds, especially those with longer maturities, may be in for more pain as the Federal Reserve seems determined to maintain its course despite the risk of recession. In its latest projections, the Fed signaled plans to lift rates by another 1.25 percentage points before the end of 2022, bringing the federal funds rate to 4.25%-4.50%.

Despite this outlook, US Treasuries form a key part of the core of investors’ portfolios, and Invesco’s line-up of low-cost US Treasury bond ETFs, which collectively house $5.6 billion in assets under management across six products, provide a full toolkit for effectively managing duration and maturity exposure.

The range includes another four funds offering targeted exposure to different segments of the yield curve: 0-1 years, 1-3 years, 3-7 years, or 7-10 years, as well as a fifth ETF which provides broad exposure across the maturity spectrum from one to 30 years. These ETFs also come with expense ratios of 0.06%.

Paul Syms, Head of EMEA Fixed Income ETF Product Management at Invesco, said: “Fixed income investors with duration or yield objectives can manage their exposures through maturity buckets. Pension funds may use this approach for liability matching while others may adjust their portfolios to take account of opportunities across the curve. For instance, our research shows investors could maintain the same duration and gain potentially 35 basis points in additional yield by adopting a barbell approach – combining ETFs that target the 1-3 year and 10+ year maturity buckets – versus a holding in the 7-10 year bucket which is currently looking relatively expensive.”

Gary Buxton, Head of EMEA ETFs and Indexed Strategies at Invesco, added: “We continue to build out our ETF range with investor-driven solutions including low-cost offerings for key markets as well as more innovative exposures. We expect fixed income to remain an important driver of growth in the European ETF market, and precision products such as these maturity ranges will enable investors to construct better portfolios and take more control of their investments.”

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