iShares Euro Government Bond 7-10yr UCITS ETF (EUR)

Der ETF enthält Anleihen von Staaten des Euro-Raumes mit einer durchschnittlichen Restlaufzeit von 7,5 Jahren. Aufgrund der längeren Laufzeit ist das Zinsänderungsrisiko hier etwas höher als bei ETFs mit Renten-Kurzläufer.

Kenneth Lamont 20.03.2015
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Rolle im Portfolio

iShares Euro Government Bond 7-10yr UCITS ETF provides investors with exposure to the longer-dated segment of the most liquid issuers of the eurozone government bond market.

The ETF's medium-to-long-dated bias (duration ~7.5) makes it less optimal for capital preservation purposes than an ETF with a portfolio sporting a shorter average maturity. Typically, shorter-term maturities will be better suited to capital preservation uses as this tends to minimise investment risk. Whilst going out further on the maturity spectrum poses some additional risks in the form of greater duration, investors may consider the risk worth taking to capture some extra yield. Would-be investors should be aware that, although the bulk of the reference index is composed of bonds from Germany and France, it also includes bonds issued by peripheral countries such as Italy and Spain.

Tactically-minded investors can use the ETF to manage interest rate risk exposure within a broader portfolio of fixed income holdings spanning the entire curve. The ETF’s longer-dated bias facilitates duration-lengthening tactics at times of falling interest rates. We would argue that the tactical use of this ETF in this manner is likely best suited to institutional investors as it involves a good understanding of yield curve dynamics and the extensive monitoring of economic developments and ECB monetary policies.

Fundamentale Analyse

The Eurozone’s challenge is now one of securing a recovery. The zone’s economic performance, though up from the crisis lows, remains well below potential and rather uneven amongst its member constituents.  Besides, falling price levels into 2015 – exacerbated by the collapse of oil prices - have raised fears of sustained deflation. .

As a response, the ECB has stepped up its accommodative policy stance, announcing a massive quantitative easing programme in January 2015. The programme involves the buying of 60bn Euros of government bonds on a monthly basis until, at the earliest, September 2016. Full blown QE represents the latest, and most dramatic in a series of economic stimulus measures introduced by the ECB, including earlier asset buying initiatives (e.g. covered bonds) and successive interest rate cuts which have left lending rates hugging the zero bound.

Although such an enormous and sustained stimulus package is expected to boost price levels – at least in the near-term - there remain question marks over the structural stability of the Eurozone.

The potential for significant political tensions within the monetary union has resurfaced with the election of Syriza in Greece, who swept to power on an anti-austerity, debt-forgiveness ticket. The rise of similarly populist political forces in other Eurozone countries is also a cause for concern.

The ECB’s monetary activism seems to have significantly reduced the risk of contagion. However, even accounting for this, the management of the Greek situation has the potential to alter core-periphery dynamics.       

Eurozone sovereign bonds may continue to remain well supported by policy fundamentals - hence meaning very low yields across the maturity spectrum - for the time being, particularly so in the shorter end of the curve.

On a much longer-term timeframe, and assuming an economic recovery, the path of least resistance for bond prices would be south. In that situation of rising yields and tighter monetary policy conditions, the tactical usage of this high duration ETF (e.g. duration exposure management) would also be compromised.


The Barclays Capital Euro Government Bond 10 Year Term Index measures the performance of 10 year government bonds issued by the major investment-grade eurozone member states (e.g. Germany, France, Italy, Spain and the Netherlands). Term indices are a Barclays Capital in-house indexing methodology which uses standard market capitalisation weighting on a bond universe made up of issues near their original maturity term rather than on all bonds within a specific maturity range. The index is calculated on a daily basis using mid-market prices provided by Barclays Capital market makers towards the close of London trading. The index is reviewed and rebalanced on the last calendar day of each month. The maximum weight of an individual bond is capped at 30% at the time of rebalance. To be eligible for inclusion into the index, bonds must have a minimum outstanding of EUR 2bn and a minimum remaining life of seven years. Additionally, the index will exclude any bonds with S&P and Moody's credit ratings below Baa3 or BBB- respectively. Income generated by the index constituents are reinvested monthly at the time of rebalancing at 1M Euro LIBOR -15 bps set at the end of the month for the next month. At the time of this writing, the index contains 17 constituents with the largest exposure comprised of German sovereign debt (~25%), followed by France (~25%), Italy (~23%) and Spain (~15%).


iShares uses physical replication to track the performance of the Barclays Euro Government Bond 10 Year Term Index. The restricted bond universe which Barclays Capital uses to construct its term indices allows iShares to fully replicate the index constituents in its fund, although statistical weightings might differ slightly and this could impact on the fund’s tracking performance at the margins. To help further improve tracking performance, the fund engages in securities lending. BlackRock has a 50% cap on the amount of assets that its iShares funds can lend out. In the 12 months through the end of December 2014, an average of 40% of the portfolio was out on loan. The lending programme added 5 basis points of net return to the fund. BlackRock, iShares’ parent company acts as lending agent, keeping 37.5% of gross securities lending revenue for itself, out of which amount it will pay the associated costs of the activity, and passing 62.5% of the revenue to the fund. To protect the fund from a borrower’s default, BlackRock takes collateral greater than the loan value. Collateral levels vary from 102.5% to 112% of the value of the securities on loan, depending on the assets provided by the borrower as collateral. Cash generated from coupon payments is held by the fund until distributions are made to fund unitholders on a semi-annual basis. This can create a cash drag on the portfolio, causing it to underperform its benchmark in rising markets and outperform in declining markets. Historically distributions have followed an April-October payment schedule.


iShares charges a total expense ratio (TER) for this ETF is 0.20%. This TER is at the high end of the annual cost range (e.g. 0.12-0.20%) for ETFs from the main European providers tracking indices biased to the 7-10 year segment of the Eurozone government bond market. It should be remembered that there are additional, investor-specific costs associated with trading the ETF, such as bid/offer spreads and brokerage commissions, which should be factored into an investment decision. There are also rebalancing costs whenever the index changes composition.


Investors seeking exposure to the medium-to-long-dated segment of the eurozone bond market have a plethora of options.

Marginally less popular than the iShares fund, in terms of AUM, is the Lyxor ETF EuroMTS 7-10Y Investment Grade ETF (TER of 0.165%). This fund fully physically replicates an index which encompasses all investment grade rated Eurozone governments issuers.

Amundi charge a slightly lower TER of 0.14% for the Government Bond EUROMTS Broad Investment grade 7-10 UCITS ETF. This fund synthetically tracks an index with a similar composition as the Lyxor fund, but with a tilt towards higher rated holdings (i.e AAA vs AA).

Those seeking even longer-dated exposure may consider the synthetically replicated Amundi ETF Government Bond EuroMTS Broad Investment Grade 10-15 UCITS ETF. This fund has a modified duration of ~10 and charges a TER of 0.14%.

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Über den Autor

Kenneth Lamont  ist Fondsanalyst bei Morningstar.