Key Takeaways
- EUR government bond funds and ETFs have returned 0.64% on average since the beginning of the year.
- Vanguard and Eurizon’s strategies are among the largest in the EUR government bond category.
- Euro government bond strategies continue to attract investors, despite the ECB’s cycle of interest rate cuts.
In a turbulent year for government bonds, European investors allocated EUR 9.40 billion to euro government bond funds and ETFs between January and July 2025. Total assets in this category amount to EUR 168.57 billion, representing 1.28% of the total assets of the industry. The group includes large funds such as the Vanguard Euro Government Bond Index Fund, which holds just under EUR 10 billion, and Eurizon Fund II - Euro Bond Z, which has EUR 7.68 billion under management.
Inflows into these strategies have increased in recent years, especially between 2022 and 2023, when the European Central Bank raised interest rates, making government bond yields more attractive to investors. The organic growth rate—Morningstar’s indicator of an asset class’s ability to attract investment—remained positive in the first seven months of 2025, rising 5.2% despite the monetary easing cycle that brought the ECB’s benchmark rates to 2%.
Challenges Facing Euro Government Bonds in 2025
However, 2025 has been a challenging year for euro-denominated government bonds due to concerns about the sustainability of public debt in many countries, the announcement of increased defense and infrastructure spending, political instability, and the tariff policies of US President Donald Trump. The Morningstar Eurozone Treasury Bond Index, which measures the performance of euro-denominated government bonds with a maturity of more than one year, is up 0.56% since January, but suffered heavy selloffs in the first part of the year and in recent weeks.
The Largest Euro Government Bond Funds and ETFs
We analyzed the largest euro government bond funds to see how they have performed since the beginning of the year and over the last three years. To do this, we considered the oldest classes of each fund, with data updated to Sept. 8, 2025.
Since January, the category has risen by an average of 0.64%, while over the three-year period it has risen by 1.12% a year. When looking at the performance of funds and ETFs, it is important to bear in mind that short-term returns can be useful in understanding the choices made by managers. However, when evaluating funds and ETFs, investors should focus on long-term performance over several years and across different market cycles.
Vanguard Euro Government Bond Index Fund
The Vanguard fund, which has assets of EUR 9.18 billion, has gained 0.63% since the beginning of the year, in line with the category average of 0.64%. Over the last three years, it has gained an average of 1.34% annually, compared to 1.12% for the category. The fund, which has a Morningstar Medalist Rating of Gold, is considered by analysts to be an attractive low-cost option for those with a long-term horizon.
“The eurozone government bond market is highly liquid and opportunities to add value over a standard benchmark are limited over the long-term,” says José Garcia-Zarate, senior principal of Morningstar’s Manager Research team.
Eurizon Fund II - Euro Bond Z
The Eurizon Asset Management fund, which has assets of EUR 7.68 billion, has returned 0.47% since the beginning of the year, while over the last three years it has earned an annualized return of 1.35%, outperforming the average of 1.12%. The fund, which has a 4-star Morningstar rating, has a solid investment process that has led it—according to Morningstar’s analysis—to strong risk-adjusted performance over the long term. However, its Medalist Rating is Neutral, due to its Low Parent Pillar.
iShares Core EUR Government Bond ETF EUR Dist
The iShares ETF is one of the largest funds in the euro government bond category, with assets of EUR 6.01 billion. Since the beginning of the year, it gained 0.45% against a category average of 0.64%. The fund, which has a Gold Medalist Rating in the class examined in this article, has achieved an annualized return of 1.25% over the three-year period. “All-maturity index-tracking funds in this category outperformed throughout the period of ultralow interest rates whereas they have lagged it during the period of rising rates when shorter duration was favored,” says Garcia-Zarate.
JPM EU Government Bond C (acc) EUR
J.P. Morgan Asset Management’s euro government bond fund, which has assets of EUR 4.29 billion, has gained 1.02% since the beginning of the year, outperforming the category. Over the last three years, it has had an annual return of 1.48%, compared to an average of 1.12% for its competitors. The fund has a Bronze Medalist Rating, thanks to “its expert management team and solid investment process,” according to Morningstar’s analysis, and a 4-star rating.
BlueBay Investment Grade Euro Government Bond I EUR Acc
The RBC BlueBay Asset Management fund, which has assets of EUR 4.20 billion, has returned 0.50% since the beginning of the year, while its annualized performance over the three-year period was 1.74%, compared to the category average of 1.12%. The fund has a Bronze Medalist Rating and a 4-star rating.
“Typical of BlueBay’s alpha-seeking philosophy and different from many peers, the strategy has the flexibility to step outside the opportunity set offered by its prospectus benchmark, the Bloomberg Euro Aggregate Treasury Index. This discretion has been used effectively by the managers,” says Giovanni Cafaro, Morningstar analyst.
