Long-Term Government Bond ETFs Decline Despite Expected PCE Data

Eurozone Inflation and Bund Yields

Meanwhile, the German 10-year bond yield also saw notable movements. It rose from 2.58% to 2.69% before slightly retreating to 2.66%, its highest level since mid-November. This increase was driven by higher-than-expected inflation figures in the Eurozone, with the headline and core rates accelerating to 2.6% and 2.9%, respectively. Despite expectations for the ECB to cut rates at the beginning of June, some policymakers have argued for maintaining a restrictive monetary policy for longer due to ongoing geopolitical tensions and military preparations by European countries. Moreover, it should be noted that the ratings agency Standard & Poor’s downgraded France’s credit score from AA to AA- on Friday, the first such downgrade since 2013, citing a deterioration in the country’s budget deficit. Earlier this year, influential rating agencies Moody’s and Fitch had spared France from a lower rating. This downgrade is unlikely to impact the French 10-year yield as France is part of the Eurozone.

Impact on Long-Term Government Bond ETFs

ETFs focused on long-term government bonds suffered due to these yield fluctuations and inflation concerns, losing 0.81% over the week and recording a year-to-date loss of 5.43%. The iShares € Govt Bond 20yr Target Duration UCITS ETF (IS05) fell by 1.56%, while the Amundi Euro Government Bond 25+Y UCITS ETF (LMTH) dropped by 2.20%.

Investor Inflows Persist

Despite their poor performance, long-term government bond ETFs attracted almost €79 million in inflows last week. This suggests that investors are still seeking these fixed-income assets, possibly anticipating future rate cuts or viewing them as safe havens amidst market uncertainty.

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Please note this article is for information purposes only and does not in any way constitute investment advice. It is essential that you seek advice from a registered financial professional prior to making any investment decision.