Well, Hallelujah! Somebody (in this case, State Street) has FINALLY launched an index product that invests in foreign currency bonds. The SPDR Lehman International Treasury Bond ETF (NYSEARCA:BWX) has an annual expense ratio of .50%. It tracks the Lehman Brothers Treasury Ex-US Capped Index, which includes bonds denominated in 11 currencies (basically, countries whose government debt has an investment grade rating).
As we wrote in December 2004, all debt indexes are problematic. In this case, Lehman uses an adjusted (i.e., capped) market capitalization methodology that risks giving greater weight than we would like to heavy issuers of government debt (e.g., Japan). On balance, however, we are very pleased to see this product finally launched.