Euro Bond Funds

Similar to bond funds in the United States, Euro bond funds are mutual funds which are comprised of government and corporate bonds except these government bonds are not issued by the U.S. government but rather are issued by governments in the European Union. Also, they are peculiar in that many times they are not denominated in the Euro but in the denominations of other countries around the world. In order to better understand Euro bond funds it is imperative to have a foundation first in Euro bonds and then bond funds that are comprised of Euro bonds.

What Are Euro Bonds?
Euro bonds are actually either municipal or corporate bonds. As noted above, although they are issued by governments and corporations in the European Union they may or may not be denominated in the Euro. In fact, the governments that issue them don’t really even need to be members of the EU as the World Bank also issues Euro bonds. In the beginning there was some amount of concern that the EU tax harmonization policy would lessen the desire for these bonds but this has not been the case in the decade or so since the Euro came into being. Euro bonds are favorable because they have the added benefit of providing tax shelters while offering anonymity.

What Are Bond Funds
One of the great things about bond funds is that unlike bonds they don’t have a maturity date. Some of the bonds within a fund will have a maturity date, but the fund itself does not. Unlike other types of mutual funds, bond funds do not contain any other type of investment products except bonds. However, there are a number of different types of bonds which include anything from short maturity to long maturity types of bonds. Bond funds are not insured even if they should be solely invested in government guaranteed bonds. This would be the case anyway with Euro bonds since they are not a United States financial product.

Top 4 Euro Bond Funds
Following are the top four performers in Euro bond funds. Although Vanguard places in three of the top four positions, iShares Barclay ranks right up there as well. Each bond fund is in a different category so each is at the head of the class, so to speak, in their respective categories.

  • BSV – Vanguard Short Term Bond ETF – Traded on ARCX, this short term fixed income holding bond fund is for those looking for short duration exposure.
  • BIV – Vanguard Intermediate Term Bond ETF – An intermediate term bond traded on ARCX and is a fixed income holding.
  • AGG – iShares Barclays Aggregate Bond Fund – Also an intermediate term bond fund with the bonds being traded on ARCX. Most suited for those looking for diversified fixed income investments.
  • BND – Vanguard Total Bond Market ETF – Also traded on ARCX, Vanguard Total Bond Market ETF is a medium term bond fund that is most suited for those looking for a diversified fixed income investment.

Although Euro bond funds are comprised of bonds issued in Europe, they are not always in Euro denominations and are quite often denominated in the currencies of countries such as the United States or Japan. They operate much the same as bond funds here in the United States do and are seen as a sound investment even though they are not backed by any government guarantees. While some of the bonds within the fund may be guaranteed, the fund itself is not. Likewise, although the bonds within the fund may have a maturity date, the fund itself is ongoing. Whether you are looking for short term or long term exposure, Euro bond funds are a great alternative to traditional U.S. bond funds.

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