Rising rates are a risk for these bond ETFs

Article Excerpt

The Bank of Canada increased its benchmark interest rate in October 2018 from 1.50% to 1.75%. That rate could rise further in 2019 depending on economic growth and the level of unemployment. We continue to caution against investing in bonds. Today’s still-low interest rates make them unattractive, and rising interest rates will push down their future value. However, if you need stable income and want to hold bonds, these two funds offer lower fees and high-quality holdings. ISHARES CORE CANADIAN SHORT-TERM BOND INDEX ETF $27.25 (Toronto symbol XSB; buy or sell through brokers) mirrors the FTSE TMX Canada Short-Term Bond Index. The fund’s MER is a low 0.17%. That index tracks investment-grade government and corporate bonds with one- to five-year terms. The ETF holds 506 bonds with an average term to maturity of 2.88 years. The bonds are 67.5% government and 32.5% corporate. Most of the corporate bonds are from high-quality issuers such as TD Bank, Hydro One, Intact Financial, Hydro Quebec, Bank of Nova…

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