Bond ETF

Bond ETFs (Bond Exchange-Traded Funds) are exchange-traded funds that invest in a basket of bonds. Unlike individual bonds, which are purchased directly and held until maturity, a bond ETF offers exposure to multiple debt securities within a single trade.

Examples of bond ETFs

Here are some well-known bond ETFs:

• iShares Core U.S. Aggregate Bond ETF (AGG) - Replicates the performance of the U.S. bond market.

• Vanguard Total Bond Market ETF (BND) - Offers exposure to a wide range of U.S. investment grade bonds.

• iShares Euro Government Bond 7-10yr ETF (IBGM) - Invested in European government bonds with a 7-10 year duration.

• SPDR Bloomberg Barclays High Yield Bond ETF (JNK) - Focuses on high-yield bonds (junk bonds).

• Lyxor Green Bond ETF - An ETF focused on “green” bonds issued to finance sustainable projects.

Why are bond ETFs better than individual bonds?

Here are some advantages of ETFs over individual bonds:

✅ Diversification: A bond ETF invests in hundreds or thousands of bonds, reducing the risk of default by a single issuer.

✅ Liquidity: ETFs can be bought and sold on the exchange at any time, while single bonds are less liquid.

✅ Lower costs: Buying a single ETF generally has lower fees than buying multiple different bonds.

✅ Simplicity: An investor does not have to manage maturities, coupons or reinvestments.

✅ Affordability: Even with a small amount of capital, it is possible to invest in a broad bond market.

Performance of bond ETFs in recent years

In recent years, bond ETFs have experienced ups and downs due to central bank policies and interest rate trends:

2020-2021: During the pandemic, central banks lowered rates, driving up the value of bonds and related ETFs.

2022: Rising inflation led to aggressive rate hikes by the FED and ECB, causing bond ETF prices to fall (when rates rise, bond values fall).

2023: Markets stabilized with expectations of rate cuts in 2024, leading to a recovery in bond ETF prices.