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bonds interest rates (Comstock Images)
bonds interest rates (Comstock Images)

Portfolio Strategy

Bond ETFs confuse you? Here's a simple guide Add to ...

Why the discrepancy? Because a lot of the bonds in XBB were issued at a time when interest rates were higher than they are now. These bonds have risen above their issue price as a result, but they’ll gradually move back to that level as they approach their maturity date. This price decline is factored into yield to maturity, which represents a total return that includes both the interest you’ll get and expected changes in the bond ETF share price.

Note that yield to maturity isn’t permanently lower than distribution yield. If interest rates move sharply higher, we could see a reversal of this pattern.

Miscellaneous terms you should know

•Weighted average coupon: An averaging of the interest payments made by bonds in the portfolio according to their weighting. Doesn’t factor in price movements for the bonds.

•Weighted average duration: A measure of sensitivity to interest-rate changes. However many years of duration a portfolio of bonds has on average, that’s how many percentage points it will fall in price if rates climb by a single percentage point (the opposite applies, too). XBB has a duration of 6.7 years, which means an increase of 1 point would cause it to fall by 6.7 points. Short- and long-term bond ETFs in the iShares family have durations of 2.6 and 13.7 years.

•Weighted average term: The average time period over which bonds in the ETF will mature.

•Ratings: Tells you how bond-rating agencies have sized up the bonds held in the portfolio. Triple-B and higher are considered high quality. Less than that will give you higher returns, but more risk.

Bond ETF inventory

Here's a list of TSX-listed exchange-traded funds that track Canadian market bond indexes.

Company/ETF

Ticker

Price ($)

Distribution Yield (%)

Yield to Maturity (%)

Management Fee (%)

Duration (years)

BMO ETFs

BMO Aggregate Bond Index ETF

ZAG

15.94

3.5

2.4

0.28

6.7

BMO Short Federal Bond Index

ZFS

15.19

2.6

1.1

0.2

2.5

BMO Mid Federal Bond Index ETF

ZFM

16.63

3

1.9

0.2

6.7

BMO Long Federal Bond Index ETF

ZFL

17.81

3.4

2.6

0.2

14.3

BMO Real Return Bond Index ETF

ZRR

18.13

2

0.3

0.25

16.7

BMO Short Provincial Bond Index ETF

ZPS

15.05

4

1.4

0.25

2.9

BMO Short Corporate Bond Index ETF

ZCS

15.04

4

2.4

0.3

2.9

BMO Mid Corporate Bond Index ETF

ZCM

15.61

4.7

3.7

0.3

5.8

BMO Long Corporate Bond Index ETF

ZLC

17.05

4.9

4.8

0.3

12.7

BMO High Yield US Corporate Bond

ZHY

14.92

8.1

8.2

0.55

4.6

Claymore

Claymore 1-5 Yr Laddered Government Bond ETF

CLF

20.41

4.5

1.5

0.15

2.9

Claymore 1-10 Yr Laddered Government Bond ETF

CLG

20.24

4.4

1.9

0.15

4.2

Claymore 1-5 Yr Laddered Corporate Bond ETF

CBO

20.47

4.6

2.2

0.25

2.9

Claymore 1-10 Year Laddered Corporate Bond ETF

CBH

20.24

5.7

n/a

0.25

n/a

Claymore Advantaged Canadian Bond ETF

CAB

20.9

3.2

2.4

0.3

5.9

Claymore Advantaged High-Yield Bond ETF

CHB

19.59

7.9

8.5

0.5

4.7

Claymore Advantaged Convertible Bond ETF

CVD

19.3

5.3

5.8

0.45

3.5

iShares

DEX Universe Bond Index Fund

XBB

31.5

3.6

2.3

0.3

6.7

DEX All Corporate Bond Index Fund

XCB

21.21

4.3

3.2

0.4

5.9

DEX All Government Bond Index Fund

XGB

21.99

3.1

2

0.35

7

DEX HYBrid Bond Index Fund

XHB

20.66

5.5

5

0.45

6.2

DEX Long Term Bond Index Fund

XLB

23.19

3.9

3.4

0.35

13.9

DEX Real Return Bond Index Fund

XRB

25.75

1.8

0.3

0.35

16.7

DEX Short Term Bond Index Fund

XSB

29.32

3.2

1.4

0.25

2.6

DEX Short Term Corporate Universe + Maple Bond Index Fund

XSH

20.04

3.8

2.2

0.25

2.8

PowerShares

1-5 Year Laddered Investment Grade Corp. Bond Index ETF

PSB

20.24

4.5

2.3

0.25

2.7

Ultra DLUX Long Term Government Bond Index ETF

PGL

22.44

3.8

3

0.25

14.4

Fundamental High Yield Corporate Bond (CAD Hedged) Index

PFH

19.47

6.4

6.4

0.65

4.1

Vanguard

Canadian Aggregate Bond Index ETF

VAB

25.4

n/a

2.3

0.2

6.6

Canadian Short-Term Bond Index ETF

VSB

25.18

n/a

1.4

0.15

2.6

Notes:

-For the best indication of the future return you will get from a bond ETF, subtract the management fee from the yield to maturity.

-Distribution yield is a backward-looking gauge of a bond ETF's return based on its current share price.

-Duration is a measure of sensitivity to interest rate changes; the longer the duration, the more sensitive a bond ETF is.

-Prices and yield data is to Dec. 15.

Source: Globeinvestor.com, ETF company websites

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