Skip to main content

The feared bond massacre of 2018 never happened – and there’s a lesson in it for all investors

So much for the hysteria over bond ETFs getting massacred.

There was a point in mid-May when it looked as if bonds were going to be a big problem for investors in 2018.

And then it passed. Let this be a lesson to all the investors who lost faith in bond exchange-traded funds – you never know what’s ahead in today’s ever-unpredictable financial markets. Stop trying to guess and just hold your bond ETFs, individual bonds, guaranteed investment certificates or whatever you use for exposure to fixed income.

Story continues below advertisement

May 17 was the day the yield on the Government of Canada five-year bond hit its year-to-date high of 2.3 per cent. Global trade tensions and political uncertainty in Europe intervened at that point, and bond yields fell to the 2-per-cent range. That’s still well up from about 1.5 per cent a year ago, but it’s a far cry from the bond market rout that was feared in the spring (bond prices and yields move inversely).

A midyear check-in with some of the bond funds covered in The Globe and Mail’s ETF Buyers’ Guide shows some reasonable total returns, considering the fretting going on earlier in the year.

  • BMO Aggregate Bond Index ETF (ZAG): Up 0.5 per cent (includes share price change plus interest) for the first six months of the year.
  • iShares Core Canadian Short Term Bond Index ETF (XSB): Up 0.5 per cent.
  • PowerShares 1-5 year Laddered Investment Grade Corporate Bond Index ETF (PSB): Up 0.4 per cent.
  • Horizons Active Corporate Bond ETF (HAB): Up 0.7 per cent.
  • Vanguard Canadian Long-Term Bond Index ETF (VLB): Up 0.7 per cent.

Yes, the year-to-date returns for these and other bond ETFs are modest. If you measured just the share price of these funds alone and didn’t include interest, they’d likely be down in value. But what were you missing out on by holding bond ETFs instead of equity funds? Not much, if you judge by the S&P/TSX Composite Total Return Index. For the first six months of the year, it made a bit less than 2 per cent. In light of how much riskier stocks are than bonds, there hasn’t been much of a premium in holding an equity fund over a bond fund in 2018 so far.

Soon enough, bond yields will start creeping higher again and predictions of pain ahead for investors holding bonds and bond ETFs will resume. You can ignore them. Hold the weighting of bonds that corresponds to your investing profile and leave it at that.

Report an error Editorial code of conduct
Tickers mentioned in this story
Unchecking box will stop auto data updates
Comments

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff.

We aim to create a safe and valuable space for discussion and debate. That means:

  • All comments will be reviewed by one or more moderators before being posted to the site. This should only take a few moments.
  • Treat others as you wish to be treated
  • Criticize ideas, not people
  • Stay on topic
  • Avoid the use of toxic and offensive language
  • Flag bad behaviour

Comments that violate our community guidelines will be removed. Commenters who repeatedly violate community guidelines may be suspended, causing them to temporarily lose their ability to engage with comments.

Read our community guidelines here

Discussion loading ...

Due to technical reasons, we have temporarily removed commenting from our articles. We hope to have this fixed soon. Thank you for your patience. If you are looking to give feedback on our new site, please send it along to feedback@globeandmail.com. If you want to write a letter to the editor, please forward to letters@globeandmail.com.
Cannabis pro newsletter