SSgA SPDR launches three short-duration bond ETFs on LSE and Deutsche Börse

Sep 12th, 2013 | By | Category: Fixed Income

SPDR ETFs, the exchange-traded funds (ETF) platform of State Street Global Advisors (SSgA), has listed three new short-duration bond ETFs on the London Stock Exchange and Deutsche Börse.

SSgA SPDR launches three short-duration bond ETFs on LSE and Deutsche Börse

Recent statements from the US Federal Reserve have put duration back on investors’ radars as a key risk within fixed income portfolios.

The funds, which are physically-backed, provide exposure to fixed income securities at the short end of the maturity curve and could be useful for investors looking to reduce their exposure to interest-rate risk.

Interest-rate risk or sensitivity, known as duration, is a major concern for investors right now following recent statements on quantitative easing from the US Federal Reserve. These statements signalled an intention to reduce the pace of bond purchases, or quantitative easing, earlier than many investors had anticipated, which in turn has driven up interest rates expectations.

With interest rates still low but expected to rise faster than many initially presumed, the case for short-duration bonds, such as the new SPDR products, has strengthened significantly. This is because bonds with a lower duration are less sensitive to changes in interest rates and thus hold their value better in a rising interest-rate environment.

Antoine Lesne, fixed income portfolio strategist at SSgA commented, “Over the last three decades, fixed income markets have enjoyed an enviable rally. Despite some of the more significant corrections of the mid to-late 1990s, surfing the yield curve wave has, for the most part, been very profitable for investors. However, now, with government bond yields at all-time lows, many fixed income investors are reviewing the sources of return in their bond allocations. More specific allocations to short-dated bond exposures via these three new ETFs may offer the potential to deliver better risk-adjusted returns than their all-maturity counterparts and help lower the negative impact of a steepening yield curve.”

Of course, before piling into these funds, investors should be aware that there’s a simple risk/return trade-off for reducing a portfolio’s duration. While shorter maturity bonds are less sensitive to rising interest rates, the yield they offer is lower than that of bonds with longer maturities of comparable credit quality. This means that investors could be forgoing extra income (opportunity cost) while they wait for rate rises to materialise.

The three new funds are as follows:

SPDR Barclays 0-3 Year US Corporate Bond UCITS ETF (SUSD)
The fund tracks the performance of the Barclays 0-3 Year US Corporate Bond Index, an index containing fixed-rate, investment-grade US dollar-denominated bonds from industrial, utility and financial issuers only. Only bonds that have a maturity of less than three years are included, and all bonds contained within the index will remain until maturity. TER 0.20%.

SPDR Barclays 0-3 Year Euro Corporate Bond UCITS ETF (SEUE)
The fund tracks the performance of the Barclays 0-3 Year Euro Corporate Bond Index, an index containing fixed-rate, investment-grade euro-denominated bonds from industrial, utility and financial issuers only. Only bonds that have a maturity of less than three years are included, and all bonds contained within the index will remain until maturity. TER 0.20%.

SPDR Barclays 1-3 Year US Treasury Bond UCITS ETF (TSY3)
The fund tracks the performance of the Barclays 1-3 Year US Treasury Bond Index, an index measuring the performance of the US government bond market and includes public obligations of the US Treasury with a maturity between 1 and up to (but not including) 3 years. TER 0.15%.

With the addition of these latest funds there are now 51 SPDR ETFs available across Europe.

Globally, SSgA offers over 180 ETFs with assets in excess of $350 billion.

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