Investors around the world are buying a growing number of European bonds as they move away from U.S. Treasuries, says Citigroup (C).
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According to an analysis by Citigroup, which is based on European Central Bank (ECB) data, European bonds saw nearly 100 billion Euros (US$116.4 billion) of buying from outside the continent in May, the largest amount in more than a decade.
Analysts at Citigroup, which is one of the largest U.S. commercial banks, say the data shows that European assets are benefiting from a move away from U.S. Treasuries and markets. The 100 billion Euros of net inflows into European bonds with maturities longer than one year that was seen in May were the largest on a monthly basis since 2014, says Citigroup.
Loss of Confidence
Allocation away from U.S. to European assets has been a big theme across financial markets in recent months as investor confidence in America is shaken by trade policies and rising debt. “This could potentially be due to substitution out of dollar assets,” Citigroup wrote in a note to clients.
President Donald Trump’s confrontations with longstanding allies over trade and security, along with attacks on the U.S. Federal Reserve, have raised concerns about the safety and reliability of U.S. Treasuries. In contrast, European bonds have traded more steadily, boosting their appeal to investors as an asset that is perceived to be safe and secure.
U.S. 30-year yields are up 40 basis points since April 2 when Trump announced his tariffs on foreign nations around the world, while German equivalents are up fewer than 20 basis points. Citigroup said it will scrutinize the June data on European bond buying that is scheduled to be released Aug. 18, which should help it to draw firmer conclusions about global investment flows.
Is the Vanguard Total Bond Market ETF a Buy?
Most Wall Street analysts don’t offer recommendations on the Vanguard Total Bond Market ETF (BND). So instead, we’ll look at its three-month performance. As one can see in the chart below, the BND ETF has risen 0.65% in the past 12 weeks.
