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We find the bond market in familiar territory as we enter the second half of 2024. In other words, bonds are getting hit. Again.

The past couple of years are full of moments of bond-market optimism followed by a return to pessimism. For everyday investors, this means the price of your individual bonds and bond funds has mostly been down in recent years. The benchmark index for Canadian government and corporate bonds has fallen by an average annual 0.1 per cent over the past five years if you consider bond price changes plus interest.

I asked ChatGPT for the best bond funds to invest in right now and got a list of mostly aggregate bond exchange-traded funds that mirror the exasperating returns of the benchmark index quoted just above, or similar. That’s a fine answer if you’re looking for a one-and-done bond ETF pick to hold for five to 10 years or more, and if you’re patient.

If you want bond ETFs that are doing okay right now, take a look at short-term corporate bonds. I keep a Globe Investor watchlist of ETFs included in recent editions of The Globe and Mail ETF Buyer’s Guide and found short-term corporate bond funds led the pack over the past year. A few examples from that list and elsewhere:

  • iShares Core Canadian Short Term Corporate Bond Index ETF (XSH-T): The 12-month total return to June 30 was 7.3 per cent, and the five-year annualized total return was 2.1 per cent.
  • iShares 1-5 Year Laddered Corporate Bond Index ETF (CBO-T): The 12-month total return to June 30 was 6.6 per cent, and the five-year annualized total return was 1.7 per cent.
  • Invesco 1-5 Year Laddered Investment Grade Corporate Bond Index ETF (PSB-T): Made 6.7 per cent for the past 12 months and an annualized 2 per cent over the past five years.
  • Fidelity Canadian Short Term Corporate Bond ETF (FCSB-NE): A 12-month return of 7.3 per cent; the fund has not been around long enough to have a five-year record.

Buying an aggregate bond fund right now is a good buy-low move, but expect some turbulence until inflation is definitively tamed and interest rates fall further. Corporate bonds would lose momentum if the economy stalled, particularly those with weaker credit ratings. For now, they’re a rare bright spot in the blighted bond landscape.

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Tickers mentioned in this story

Study and track financial data on any traded entity: click to open the full quote page. Data updated as of 22/11/24 3:13pm EST.

SymbolName% changeLast
XSH-T
Ishares Core CDN ST Corp Maple Bnd ETF
+0.05%18.81
CBO-T
Ishares 1-5Yr Laddered Corp Bond ETF
+0.22%18.11
PSB-T
Invesco 1 To 5 Yrladder Inv Grd Bd ETF
+0.06%17.69
FCSB-NE
Fidelity Canadian Short Term Corp Bd ETF
+0.04%25.39

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