Different Bond ETF performance by Country of Stock Exchange?

SAM563

New Member
Messages
3
Hello,

I'm rather investing beginner and my conservative part of ETFs is now basicaly made by U.S. Treasury Bond 7-10yr ETF. To get to the problem: I've chosen particulary iShares UCITS - IUSM:GR, traded at Xetra. Currently, if you check e.g. the U.S. 7 Year Treasury Note interest rate, it continuously descended this year from 1,5 to 0,5%.
By my humble knowledge, that should have a positive growing effect on the price of U.S. 7 Year Treasury Bond and corresponding for 10yr. I can see such relation reflected on iShares 7-10 Year Treasury Bond ETF traded in NASDAQ, or also similar Swiss Invesco ETF.
However, if one compare it to the mentioned German iShares 7-10 Year Treasury Bond ETF, its price developed roughly same until half May, but until now it's falling somewhere to pre-Covid values.
I understand that except U.S. gov. bond interest rate, there are more factors for change in these ETFs, like Infation, Currency rates, that ETF holdings composition is not exact same etc. Though can someone please explain, what is the main thing causing such difference between trading Countries? Is the cause more general and not related only to Bond ETFs?
Thank you very much.
 

RedOnion

Frequent Poster
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4,540
So, you're comparing the return on a USD and a EUR denominated fund. Have you looked at the impact of FX rates on your investment?
 

Jim2007

Frequent Poster
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2,121
I’m not interested in these particular bonds nor the associated ETFs, but a couple of points to look into:

- The assumption that the ETF contains U.S. Treasury Bond 7-10yr, is probably not true. This can be due to a lack of liquidity and availability. So synthetics are used and it becomes a question of how well the track the underlying bonds.

- Interest rates are another issue and this can also be complex as well when synthetics are used.

Bond ETFs are complex and difficult to get 100% correct. If you want to hold bonds it is probably less risky to buy the original instrument and hold it to maturit.
 

AAAContributor

Registered User
Messages
17
On the iShares fund websites (not Bloomberg), go to Performance - Cumulative - Total Return (%) 6M, the US listed fund has a 6M TR (to the end of June 2020) of 11.05% and the UCITS equivalent (EUR hedged) has a 6M TR of 10.18%. Not a million miles away. The unhedged 6M TR is 11.12%. While EURUSD at the start of January 2020 was around 1.12 and also 1.12 at the end of June, there were some massive moves in between. There is probably some slippage with the FX hedging of the fund.
 

SAM563

New Member
Messages
3
Ok, thank you guys for hints. The answer is that simple, I just didn't admit solid importance to it. It really is in FX rate. Since half May USD fell from 0.92 to 0.85 EUR and graph pretty much corelate with UCITS ETF. I just had some fixed notion, that if FX rate changes, it's usually very slow. Now it was featured by EU deal for new common debt. So I'll need to cross fingers for US to get together faster than EU..
On iShares page really are both ETFs shown in nicely rising shape, just that German (IUSM) is thrown in USD and if you want to switch to Eur, there is offered only hedged version, which is different ETF.
 

AAAContributor

Registered User
Messages
17
jpd. You're right. I was using the hedged version as a comparison and this is a different ETF and not what SAM563 is invested in. SAM563, just to clarify, I re-checked and the fund is doing what it says on the tin. Using the exact tickers you gave:

Date IEF:US Fund Price IUSM:GR Fund Price EURUSD IEF:US Converted into EUR
04/02 $113.13 €188.21 1.1044 102.4357
03/08 $122.64 €191.00 1.1762 104.2679

% Return 8.40% 1.48% -6.50% 1.79%

Comparing 1.48% versus 1.79%, not a massive difference. Different FX rates may be used by iShares relative to what I have here.
 

SAM563

New Member
Messages
3
All agreed. I cannot complain if I omitted FX rates and not found the hedged fond, those 8% would be more favourable to look at :) Well, how temparary that will be, is another story..
 
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