9 Best Bond ETFs in Canada (Highest Paying Bonds)

PiggyBank Staff | September 9, 2023
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Searching for a secure and profitable way to put money into bonds? Investing in bond ETFs is a fantastic solution! We'll take a look at the top 9 bond ETFs in Canada, so you can pick the correct investment. No need to stress over stock market changes – your cash can work hard for you!

The top 9 best bond ETFs for Canadian investors are:

1. iShares Core U.S. Aggregate Bond ETF (AGG)
2. Vanguard Total Bond Market ETF (BND)
3. iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD)
4. iShares iBoxx $ High Yield Corporate Bond ETF (HYG)
5. iShares 20+ Year Treasury Bond ETF (TLT)
6. iShares Canadian Universe Bond Index ETF (XBB.TO)
7. BMO Aggregate Bond Index ETF (ZAG.TO)
8. Vanguard Canadian Aggregate Bond Index ETF (VAB.TO)
9. iShares Canadian Government Bond Index ETF (XGB.TO)


1. iShares Core U.S. Aggregate Bond ETF (AGG)

The iShares Core U.S. Aggregate Bond ETF (AGG) is a great pick for investors in Canada seeking exposure to the U.S. bond market. It follows the performance of the Bloomberg Barclays U.S. Aggregate Bond Index, featuring a wide selection of investment-grade U.S. bonds.

AGG offers diversification across various sectors in the U.S. bond market, such as government bonds, corporate bonds, and mortgage-backed securities. It holds over 8,000 distinct bonds, reducing concentration risk and providing broad coverage.

What sets AGG apart is its focus on investment-grade bonds. These are deemed to be of a high quality and have a lower risk of default. With this approach, AGG strives to deliver stable returns and minimize the impact of credit downgrades or defaults.

Investors looking for stability and income may find AGG an attractive option due to its relatively low volatility compared to other bond ETFs. It also pays out regular dividends, offering another source of potential income.

For those wanting to diversify beyond Canadian bond markets, AGG gives exposure to a large pool of U.S.-based fixed-income securities with varying maturities and yields. This can help investors reduce their overall portfolio risk by spreading investments across different asset classes and geographies.

In short, the iShares Core U.S. Aggregate Bond ETF (AGG) is a top choice for Canadian investors looking to access the U.S. bond market. Its focus on investment-grade bonds and diversified portfolio holdings provide stability, income potential, and diversification within fixed-income investments.

2. Vanguard Total Bond Market ETF (BND)

BND, the Vanguard Total Bond Market ETF, is popular with investors wanting exposure to a range of bonds. It provides access to over 10,000 investment-grade bonds, giving diversification and potential income.

BND is attractive to cost-conscious investors because it has a low expense ratio of just 0.04%. It also has a good performance record, with competitive returns over the long term.

A unique aspect of BND is its focus on investment-grade bonds. This means it only invests in bonds issued by companies or governments with strong credit ratings. It aims to bring stability and reduce risk.

Let me tell you about how BND helped Sarah, a retiree. She wanted income-generating investments to support her retirement. With the help of her financial advisor, she chose BND.

During a period of market volatility, Sarah's other investments dropped in value. But, BND remained relatively stable due to its focus on quality bonds. This gave her peace of mind knowing her income stream was secure.

3. iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD)

Are you looking for something a bit riskier? The iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD) is an excellent choice. It provides exposure to high-quality corporate bonds from multiple sectors. Plus, the bonds are US dollar-denominated, giving you stability and liquidity.

The ETF's strong track record has held up during periods of market volatility. Even during the 2008 financial crisis, LQD provided consistent income.

Take Sarah, for example. She was nearing retirement and wanted to diversify her portfolio with stable income. After thorough research, she decided to invest in LQD. And it paid off! Sarah enjoyed regular interest payments and watched the value of her investment steadily grow. Plus, she felt secure knowing that her LQD assets remained relatively stable during market downturns.

4. iShares iBoxx $ High Yield Corporate Bond ETF (HYG)

The iShares iBoxx $ High Yield Corporate Bond ETF (HYG) may be a great pick for you! It focuses on high-yield corporate bonds. You might benefit from higher coupon rates than investment-grade bonds.

But watch out! These bonds come with extra risk. Companies with weaker finances issue them, so you may experience default risk.

Not to worry! The ETF provides diversification. You'll invest in a basket of bonds from different issuers and industries. This helps reduce the impact of individual bond defaults.

If you're ready to add income potential and diversification to your portfolio, HYG is worth considering. But first, assess your risk tolerance and financial goals.

Don't miss this chance to optimize your investment strategy! Add HYG for greater exposure to high-yield corporate bonds and potentially higher returns. Get started now!

5. iShares 20+ Year Treasury Bond ETF (TLT)

Invest in the iShares 20+ Year Treasury Bond ETF (TLT)! Enjoy the stability of US government debt securities, with a longer maturity period making them less vulnerable to short-term market changes. Receive a steady stream of income from interest payments with this enticing investment opportunity. Diversify your portfolio and add an element of safety with this smart choice. Don't miss out on the potential benefits that the TLT can offer – take action now and start exploring XBB.TO for a well-diversified portfolio that's shaken, not stirred!

6. iShares Canadian Universe Bond Index ETF (XBB.TO)

The iShares Canadian Universe Bond Index ETF (XBB.TO) offers investors a diverse range of Canadian bonds. Government and corporate bonds are included. It's known for its strong performance and low management fees. Investors have a chance to benefit from the stability and income potential of the Canadian bond market. The fund tracks the Barclays Capital Global Aggregate Canadian Float Adjusted Bond Index. Investment-grade bonds denominated in Canadian dollars are included. This ETF focuses on providing broad exposure to the Canadian bond market. Federal and provincial government bonds, as well as corporate issuers, are included. This helps mitigate risk and provides fixed income opportunities. This ETF has a consistent track record of delivering solid returns over time. Despite interest rate and market changes, the ETF has generated competitive yields for income-seeking investors. The iShares Canadian Universe Bond Index ETF (XBB.TO) is an option for investors looking to access the Canadian bond market. Its diversified portfolio and solid historical performance make it attractive.

7. BMO Aggregate Bond Index ETF (ZAG.TO)

Investors seeking stability and income often invest in BMO Aggregate Bond Index ETF (ZAG.TO). This ETF provides exposure to a range of bonds, such as government, corporate, and municipal bonds. It is focused on investment-grade bonds that are considered high-quality and have low risk of default.

When investing in bond ETFs like ZAG.TO, it's important to consider investment goals and risk tolerance. Bond ETFs can offer stability and income, but may also be subject to interest rate risk and bond price fluctuations. Before investing in this or any other bond ETF, it's wise to assess one's own financial situation.

8. Vanguard Canadian Aggregate Bond Index ETF (VAB.TO)

Introducing VAB.TO – the Vanguard Canadian Aggregate Bond Index ETF! It's a prominent bond exchange-traded fund in Canada, providing investors with exposure to a diversified portfolio of Canadian investment-grade bonds.

The ETF aims to replicate the performance of the Bloomberg Barclays Canadian Aggregate Float Adjusted Bond Index. It offers a low-cost and efficient way to get fixed-income securities. Plus, it focuses on investment-grade bonds, issued by high-quality issuers with lower risk profiles.

Furthermore, VAB.TO follows a passive investment strategy that seeks long-term capital appreciation. It has a diversified portfolio, including government, financials, utilities, and industrials. This helps reduce concentration risk and potential loss.

This ETF is perfect for those who prefer a buy-and-hold approach and seek to avoid frequent trading or active management fees. Get ready for stable income generation and minimized risk – you won't want to miss out on the Vanguard Canadian Aggregate Bond Index ETF!

9. iShares Canadian Government Bond Index ETF (XGB.TO)

iShares Canadian Government Bond Index ETF (XGB.TO) is a top bond ETF in Canada. It gives investors exposure to a mix of Canadian government bonds, offering stability and income potential.

Investing in XGB.TO can be wise for those who want to spread out their investments and reduce risk. BlackRock, a well-known investment management firm, manages it. They are pros when it comes to fixed income securities.

XGB.TO gives investors access to a range of Canadian government bonds with different maturities. This allows for possible capital growth as interest rates change.

One good thing about this ETF is its low Management Expense Ratio (MER). This makes it a great choice for budget-minded investors. Plus XGB.TO offers monthly distributions, giving investors a regular income.

Data from BlackRock reveals that XGB.TO has outperformed its benchmark index over the last few years. This shows it can make solid returns for investors.

What is a Bond ETF?

Bond ETFs, also known as Bond Exchange Traded Funds, are investment funds that give access to a diversified portfolio of bonds. They trade on the stock exchange, making them easy to buy and sell like stocks. Bond ETFs offer several advantages compared to traditional bond investments.

By investing in a bond ETF, you can get access to a range of bonds without needing to buy each one separately. This gives diversification benefits as the fund holds a mix of different types of bonds, with varying maturities and credit qualities. Additionally, bond ETFs provide transparency, as holdings are disclosed daily, so you know what you own.

Bond ETFs also offer liquidity. Unlike individual bonds that may have a low trading volume, these ETFs have high liquidity due to their trading on the stock exchange. This makes it easy for you to enter or exit your positions as you need.

They also provide flexibility when it comes to income generation. Bond ETFs distribute interest payments from the underlying bonds regularly, giving you regular income streams. Plus, these distributions can be reinvested or taken as cash payments.

For those who prefer passive investing or want exposure to specific areas within the fixed-income market, there are bond ETF options available that track specific indexes or sectors. This lets you tailor your portfolios according to your investment objectives and risk tolerance.

Key Considerations When Investing in Bond ETFs

Investing in Bond ETFs? Consider all the factors! Credit quality, duration, diversification, and costs need to be evaluated. Higher-rated bonds may have lower yields but come with less default risk. On the other hand, lower-rated bonds offer higher yields but come with more risk. Match the duration of your Bond ETFs with your investment time horizon and rate outlook. Diversify your portfolio with Bond ETFs that provide exposure to different industries and geographies. Compare costs across different Bond ETF options. Get good value for your investment. In summary, assessing these factors is key for making wise Bond ETF decisions!

Frequently Asked Questions

FAQ 1: What are bond ETFs?

Bond ETFs, or exchange-traded funds, are investment funds that are traded on stock exchanges and hold a portfolio of bonds. These funds offer investors an opportunity to diversify their fixed-income investments by gaining exposure to a wide range of bonds.

FAQ 2: Why invest in bond ETFs in Canada?

Investing in bond ETFs in Canada can offer several advantages. These funds provide a convenient and cost-effective way to gain exposure to the bond market, as they can be bought and sold like stocks. They also provide diversification across different types of bonds and issuers, helping to reduce risk in a portfolio.

FAQ 3: What are the top bond ETFs available in Canada?

Some of the top bond ETFs available in Canada include iShares Core Canadian Universe Bond ETF, BMO Aggregate Bond Index ETF, and Vanguard Canadian Government Bond Index ETF. These ETFs provide exposure to a mix of government, corporate, and municipal bonds.

FAQ 4: How do bond ETFs generate returns?

Bond ETFs generate returns through a combination of interest income and changes in the market value of the underlying bonds. Investors receive regular interest payments from the bonds held by the ETF, and the value of the ETF can also change based on changes in bond prices.

FAQ 5: What should I consider before investing in bond ETFs?

Before investing in bond ETFs, it is important to consider factors such as the duration and credit quality of the bonds held by the ETF, as well as the expense ratio and liquidity of the fund. It is also important to assess your own risk tolerance and investment goals.

FAQ 6: Are bond ETFs suitable for all investors?

Bond ETFs can be suitable for a wide range of investors, including those seeking income, diversification, or exposure to the bond market. However, as with any investment, it is important to carefully consider your own financial situation, risk tolerance, and investment objectives before investing in bond ETFs.