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BetaShares US Treasury Bond 20+ Year FX Hedged ETF (ASX: GGOV)

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BetaShares US Treasury Bond 20+ Year FX Hedged ETF (ASX: GGOV)

Hi MM, Given the recent moves, and your views, on bonds and bond yields, do you consider GGOV a buy or strong buy add current levels even if potentially a contrarian one? What is GGOV's expected yield annually? Thanks Darren

Answer

Hi Darren,

Buying, or even accumulating the GGOV ETF is currently akin to catching a falling knife and not for the fainthearted. For members not familiar with the GGOV it’s an ETF which provides exposure to long-dated US government bonds with maturities of 20+ years, while hedging US dollar exposure back to Australian dollars.

  • Its long duration makes its capital value highly sensitive to US bond yields, meaning falling long-term yields could deliver sizeable capital gains on top of the income, while rising yields would have the opposite effect – as we have at the moment.

For GGOV, the best guide to income over the next 12 months is its current trailing distribution yield of ~4.3%, given there is no consensus forward yield forecast for the ETF. Distributions are primarily driven by the coupon income from its portfolio of 20+ year US Treasuries, adjusted for the impact of hedging the US dollar exposure back into Australian dollars. Importantly, the ~4.3% yield is only part of the return equation as witnessed in recent years.

At this stage we are more confident that Australian bonds are reaching their nadir whereas their US peers look more vulnerable to further weakness, a view concurred across credit markets:

  • Bond markets are pricing in at least one more Fed 0.25% hike before Christmas compared to local markets pricing in less than a 50% chance of a hike.
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BetaShares US Treasury Bond 20+ Year FX Hedged ETF (GGOV)
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