State Street Global Advisors (SSgA) got the drop on Barclays Global Investors (BGI)with the launch of the first international bond exchange-traded fund (ETF). Last Friday, the SPDR Lehman International Treasury Bond ETF (BWX) began trading on the American Stock Exchange (AMEX). The fund charges 0.50% in annual expenses.

State Street has suggested that its new fund can be used as a hedge against the U.S. dollar as the index's value has tended to rise when the dollar's value has fallen. It has also positioned BWX as a diversification play, citing international fixed income's low correlation to domestic stocks and bonds. SSgA puts the underlying index's correlation with the S&P 500 at -0.02, and even its correlations with domestic bonds are quite low - a 0.51 correlation to the Lehman U.S. Aggregate Bond Index and a 0.50 correlation to the Lehman U.S. Treasury Index.

The fund is based on the Lehman Brothers Global Treasury Ex-US Capped Index, which tracks fixed-rate sovereign debt denominated in local currency from investment-grade countries. It covers 18 countries and includes more than 670 issues. However, the ETF only holds about 62 in its optimized portfolio. Among the top five holdings are three Japanese government bonds that together represent more than 15% of the fund's total assets, a German government bond (6.47%), and a Greek government bond (4.04%). Japan is the ETF's largest country, representing almost 23% of total assets.

The fund has an average credit quality of AA2, average coupon of 4.35%, and an average "life" of 7.59 years; the underlying index has the same credit quality, but a slightly lower average coupon and a slightly longer average life.

BGI and PowerShares both have broad-based emerging markets bond ETFs in registration. Although 10% of BWX's underlying index is emerging market debt, the fund will not be a direct competitor.