13 Best Bond ETFs in Canada 2022: Invest in Fixed Income Assets

Investing in Bond ETFs is an excellent way to diversify your portfolio while providing a safe hedge against inflation market volatility.

Bonds typically have a negative correlation to the equities market. As bond yields rise, stock prices generally fall, and vice versa.

This is one reason why bonds become a popular investment in times of market volatility and uncertainty.

One nice thing about bonds is that they also provide a steady income stream through distributions. They are not intended for long-term capital growth.

All of the top ETF companies provide bond ETF choices to Canadian investors. These include Vanguard bond ETFs and Blackrock iShares bond ETFs.

In this article, we will cover the 13 Best Bond ETFs in Canada for 2022.

What is a Bond ETF?

A bond ETF is similar to equity or stock ETFs, except that it is a portfolio of bonds instead of stocks of companies.

These ETFs generally pay out a steady and frequent distribution which offsets a lack of capital growth.

Bonds also use different measures than stocks. For instance, the coupon yield is how much income investors can expect to earn from holding these bonds.

The maturity date is when the bond needs to be paid in full. These are the differentiating factors between short, medium, and long-term bonds.

Best Bond ETFs in Canada

Here is the Bond ETF list of the funds we will be covering in this article:

  • iShares Core Canadian Universe Bond Index ETF (XBB)
  • BMO Aggregate Bond Index ETF (ZAG)
  • Vanguard Canadian Aggregate Bond Index ETF (VAB)
  • Vanguard Short-Term Bond Index ETF (VSB)
  • iShares Core Canadian Short Term Bond Index ETF (XSB)
  • BMO Short Corporate Bond Index ETF (ZCS)
  • Vanguard Canadian Government Bond Index ETF (VGV)
  • Vanguard Canadian Corporate Bond Index ETF (VCB)
  • BMO Discount Bond Index ETF (ZDB)
  • TD Canada Canadian Aggregate Bond Index ETF (TDB)
  • iShares US High Yield Bond Index ETF (CAD-Hedged) (XHY)
  • Vanguard Global Aggregate Bond Index ETF (CAD-Hedged) (VGAB)
  • BMO Global Strategic Bond Fund (ZGSB)

All facts and figures are as of May 17th, 2022.

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iShares Core Canadian Universe Bond Index ETF (XBB)

XBB is a Blackrock iShares Canada ETF that was established in November of 2000 and trades on the Toronto Stock Exchange.

XBB is a low-cost fixed-income ETF that provides exposure to the Canadian investment-grade bond market.

It has a low-risk rating, and its largest weighted holdings are mostly Canadian Government bonds.

Here are some key facts for XBB:

  • Inception Date: November 20, 2000
  • MER: 0.10%
  • Management Fee: 0.09%
  • Number of bonds: 1,449
  • Distribution yield: 2.81%
  • 12-Month Trailing Yield: 2.82%
  • Distribution frequency: Monthly
  • Weighted Average Coupon: 2.74%
  • Weighted Average Maturity: 10.3 years
  • 1-year performance: -8.05%
  • Eligibility: All registered and non-registered accounts

BMO Aggregate Bond Index ETF (ZAG)

ZAG is a BMO Canada ETF that was established in January of 2010 and trades on the Toronto Stock Exchange.

ZAG is a high yield Bond ETF that is designed to track the FTSE Canada Universe Bond Index.

Like XBB, ZAG provides exposure to the aggregate Canadian investment-grade bond market.

Here are some key facts for ZAG:

  • Inception Date: January 19, 2010
  • MER: 0.09%
  • Management Fee: 0.08%
  • Number of bonds: 1,423
  • Distribution yield: 3.49%
  • 12-Month Trailing Yield: N/A
  • Distribution frequency: Monthly
  • Weighted Average Coupon: 2.80%
  • Weighted Average Maturity: 7.39 years
  • 1-year performance: -8.06%
  • Eligibility: All registered and non-registered accounts

For more details about BMO ETFs, click here.

Vanguard Canadian Aggregate Bond Index ETF (VAB)

VAB is one of the best Vanguard Bond ETFs in Canada that trades on the Toronto Stock Exchange.

VAB is designed to track the Bloomberg Global Aggregate Canadian Float Adjusted Bond Index. It provides exposure to public, investment-grade Canadian bonds.

VAB provides high income and a consensus high credit rating for the bonds it holds in the fund.

Here are some key facts for VAB:

  • Inception Date: November 30, 2011
  • MER: 0.09%
  • Management Fee: 0.08%
  • Number of bonds: 1,132
  • Distribution yield: 2.62%
  • 12-Month Trailing Yield: 2.75%
  • Distribution frequency: Monthly
  • Weighted Average Coupon: 2.80%
  • Weighted Average Maturity: 10.4 years
  • 1-year performance: -8.05%
  • Eligibility: All registered and non-registered accounts

Learn more about the fund in this VAB ETF review.

Vanguard Canadian Short-Term Bond Index ETF (VSB)

VSB is a Vanguard Canada ETF that was established in November of 2011 and trades on the Toronto Stock Exchange.

It is designed to focus on Canadian government bonds with a maturity date of 1-5 years.

VSB is yet another of the many Vanguard Bond ETFs in Canada that provide asset diversity for Canadian investors.

Here are some key facts for VSB:

  • Inception Date: November 30, 2011
  • MER: 0.11%
  • Management Fee: 0.10%
  • Number of bonds: 477
  • Distribution yield: 1.89%
  • 12-Month Trailing Yield: 2.08%
  • Distribution frequency: Monthly
  • Weighted Average Coupon: 2.30%
  • Weighted Average Maturity: 3.0 years
  • 1-year performance: -4.49%
  • Eligibility: All registered and non-registered accounts

iShares Core Canadian Short Term Bond Index ETF (XSB)

XSB is a Blackrock iShares Canada ETF that was established in November of 2000 and trades on the Toronto Stock Exchange.

It is one of the best short-term bond ETFs in Canada. It holds bonds that have maturity dates between 1-5 years, which typically makes them less volatile.

XSB is designed to be a long-term core portfolio holding due to its low volatility and high distribution payouts.

Here are some key facts for XSB:

  • Inception Date: November 20, 2000
  • MER: 0.10%
  • Management Fee: 0.09%
  • Number of bonds: 527
  • Distribution yield: 2.11%
  • 12-Month Trailing Yield: 2.11%
  • Distribution frequency: Monthly
  • Weighted Average Coupon: 2.20%
  • Weighted Average Maturity: 3.01 years
  • 1-year performance: -4.49%
  • Eligibility: All registered and non-registered accounts

BMO Short Corporate Bond Index ETF (ZCS)

ZCS is a BMO Canada ETF that was established in October of 2009 and trades on the Toronto Stock Exchange.

It is one of the best corporate bond ETFs in Canada and is designed to track the FTSE Canada Short Term Corporate Bond Index.

ZCS holds corporate-grade bonds with maturity dates between 1-5 years. Most of the major holdings are bonds issued by the major Canadian banks.

Here are some key facts for ZCS:

  • Inception Date: October 20, 2009
  • MER: 0.11%
  • Management Fee: 0.19%
  • Number of bonds: 404
  • Distribution yield: 3.17%
  • 12-Month Trailing Yield: N/A
  • Distribution frequency: Monthly
  • Weighted Average Coupon: 2.80%
  • Weighted Average Maturity: 2.77 years
  • 1-year performance: -4.78%
  • Eligibility: All registered and non-registered accounts

Vanguard Canadian Government Bond Index ETF (VGV)

VGV is a Vanguard Canada ETF that was established in January of 2017 and trades on the Toronto Stock Exchange.

It is one of the best government bond ETFs in Canada. It is designed to track the broader Canadian government bond index.

VGV holds investment-grade government bonds that were issued in Canada.

Here are some key facts for VGV:

  • Inception Date: January 31, 2017
  • MER: 0.17%
  • Management Fee: 0.15%
  • Number of bonds: 394
  • Distribution yield: 2.24%
  • 12-Month Trailing Yield: 2.54%
  • Distribution frequency: Monthly
  • Weighted Average Coupon: 2.70%
  • Weighted Average Maturity: 11.4 years
  • 1-year performance: -8.38%
  • Eligibility: All registered and non-registered accounts

Vanguard Canadian Corporate Bond Index ETF (VCB)

VCB is a Vanguard Canada ETF that was established in January of 2017 and trades on the Toronto Stock Exchange.

It is designed to track the Bloomberg Barclays Global Aggregate Canadian Credit Float Adjusted Bond Index.

VCB focuses on investment-grade, non-government corporate bonds issued in Canada.

Here are some key facts for VCB:

  • Inception Date: January 31, 2017
  • MER: 0.17%
  • Management Fee: 0.15%
  • Number of bonds: 695
  • Distribution yield: 2.79%
  • 12-Month Trailing Yield: 3.01%
  • Distribution frequency: Monthly
  • Weighted Average Coupon: 3.2%
  • Weighted Average Maturity: 7.6 years
  • 1-year performance: -7.40%
  • Eligibility: All registered and non-registered accounts

BMO Discount Bond Index ETF (ZDB)

ZDB is a BMO Canada ETF that was established in February of 2014 and trades on the Toronto Stock Exchange.

It is designed to track the FTSE Canada Universe Discount Bond Index.

ZDB focuses on Canadian bonds with a term of maturity greater than one year and a coupon rate equal to or less than 1.4 times the yield to maturity of the bond.

Here are some key facts for ZDB:

  • Inception Date: February 10, 2014
  • MER: 0.10%
  • Management Fee: 0.09%
  • Number of bonds: 293
  • Distribution yield: 2.45%
  • 12-Month Trailing Yield: N/A
  • Distribution frequency: Monthly
  • Weighted Average Coupon: 1.97%
  • Weighted Average Maturity: 9.76 years
  • 1-year performance: -7.92%
  • Eligibility: All registered and non-registered accounts
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Best bond etfs in canada

TD Canadian Aggregate Bond Index ETF (TDB)

TDB Is a TD Canada Bond ETF that was established in March of 2016 and trades on the Toronto Stock Exchange.

It tracks the aggregate Canadian bond index and focuses on investing in investment-grade publicly issued debt which includes both corporate and government bonds.

TDB is one of the best Canadian bond ETFs and has an inexpensive MER and monthly distributions.

Here are some key facts for TDB:

  • Inception Date: March 21, 2016
  • MER: 0.08%
  • Management Fee: 0.07%
  • Number of bonds: 1,035
  • Distribution yield: 2.85%
  • 12-Month Trailing Yield: N/A
  • Distribution frequency: Monthly
  • Weighted Average Coupon: 2.68%
  • Weighted Average Maturity: 9.85 years
  • 1-year performance: -7.70%
  • Eligibility: All registered and non-registered accounts

iShares US High Yield Bond Index ETF (CAD-Hedged) (XHY)

XHY is an iShares Canada ETF that was established in January of 2010 and trades on the Toronto Stock Exchange.

It is a US bond ETF that focuses on high-yield, non-investment grade corporate bonds.

XHY has a higher MER due to exposure to US bonds and is hedged with the Canadian dollar to avoid currency fluctuations.

Here are some key facts for XHY:

  • Inception Date: January 21, 2010
  • MER: 0.67%
  • Management Fee: 0.60%
  • Number of bonds: 1,218
  • Distribution yield: 5.31%
  • 12-Month Trailing Yield: 5.26%
  • Distribution frequency: Monthly
  • Weighted Average Coupon: 5.38%
  • Weighted Average Maturity: 5.62 years
  • 1-year performance: -6.12%
  • Eligibility: All registered and non-registered accounts

Vanguard Global Aggregate Bond Index ETF (CAD-Hedged) (VGAB)

VGAB is a Vanguard Canada ETF that was established in January of 2020 and trades on the Toronto Stock Exchange.

It is a global bond ETF that provides exposure to bonds from the US, Japan, France, and Germany, amongst others.

Here are some key facts for VGAB:

  • Inception Date: January 17, 2010
  • MER: 0.33%
  • Management Fee: 0.30%
  • Number of bonds: 16,188
  • Distribution yield: 2.57%
  • 12-Month Trailing Yield: 2.51%
  • Distribution frequency: Monthly
  • Weighted Average Coupon: 1.9%
  • Weighted Average Maturity: 10.3 years
  • 1-year performance: -8.52%
  • Eligibility: All registered and non-registered accounts

BMO Global Strategic Bond Fund (ZGSB)

ZGSB is a BMO Canada ETF that was established in May of 2018 and trades on the Toronto Stock Exchange.

It is a global bond ETF that provides exposure to bonds from the US, Mexico, Europe, China, and Brazil.

ZGSB is for Canadian investors who seek reliable income and global, multi-sector exposure.

Here are some key facts for ZGSB:

Inception Date: January 17, 2010

  • MER: 0.82%
  • Management Fee: 0.73%
  • Number of bonds: 332
  • Distribution yield: 4.18%
  • 12-Month Trailing Yield: N/A
  • Distribution frequency: Quarterly
  • Weighted Average Coupon: 4.21%
  • Weighted Average Maturity: 10.05 years
  • 1-year performance: -8.12%
  • Eligibility: All registered and non-registered accounts

How to Buy Bond ETFs in Canada in 2022

Canadian investors can buy bond ETFs at any brokerage in Canada. Here are a few of the best discount brokerages for Canadians.

Questrade

Questrade is Canada’s largest discount brokerage and was established in Toronto, way back in 1999.

It offers a wide range of investment opportunities for Canadian investors including stocks, ETFs, options, currencies, mutual funds, bonds, and automated investing (robo-advisory).

Buying bond ETFs on Questrade is free but selling ETFs will cost $4.95 min. per transaction.

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Wealthsimple Trade

Established in 2014, Wealthsimple Trade is an online brokerage that is owned by the Power Corporation of Canada.

It provides Canadian investors with a number of investment opportunities including ETFs, stocks, and cryptocurrencies.

Bond ETFs on Wealthsimple Trade come with no trading commission fees, which has made the platform a popular choice amongst Canadian investors.

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QTrade

Qtrade is a Canadian discount brokerage that was founded in Vancouver, BC in 2001.

It has numerous investing tools like its robo-advising service called VirtualWealth.

Qtrade offers free ETF trading for some Canadian ETFs and investors can choose from 12 different Canadian bond ETFs on the list. Learn more in this review.

Are Bond ETFs a Good Investment?

For Canadian investors bond ETFs can be an excellent source of reliable monthly income while reducing exposure to a volatile equities market.

As with most ETFs, bond ETFs provide more stability than investing in individual bonds.

Bond ETFs typically are not the only holdings in a diversified portfolio. They act well as an additional portfolio component to equities or stock ETFs.

The Downside of Bond ETFs

The downside to bond ETFs is that they are generally not great for long-term capital growth. This is why they should not be the only component in your portfolio.

As premium bonds held in the bond ETFs mature at face value, this could result in a capital loss. The monthly or quarterly distributions are meant to offset these potential losses.

Bond prices work inversely to interest rates. If interest rates are rising, then the price of bonds are falling, which means your bond ETF investment could sustain a capital loss.

Related: How To Buy Stocks in Canada.

Bond ETF FAQs

What is the Best Canadian Bond ETF?

The best Canadian bond ETF is always up to the individual investor themselves. The things you should be looking for include regular distributions, a low MER, and good historical performance. Of the Canadian bond ETFs that we discussed, the BMO Aggregate Bond Index ETF (ZAG) is one of the best all-around on our bond ETF list.

When is a Bond ETF Bad for your Portfolio?

Bond ETFs can be a bad choice for your portfolio when equities are in a bull market. If this is the case, you might as well put your investments into stocks or stock ETFs (risk tolerance and investment timeframe allowing). Bond ETFs can also be bad when interest rates are rising, as the price of bonds will decrease.

Can you Lose Money with a Bond ETF?

You can suffer a capital loss if you hold bond ETFs for the long-term and premium bonds continue to mature in the fund. You can also lose money if the interest rates rise, which would cause the price of the underlying bonds in your ETF to fall.

What is the Difference Between a Bond ETF and an Equity ETF?

A bond ETF holds different types of bonds and pays a frequent distribution. Its price will fluctuate according to the bond market and macroeconomic factors like interest rates. An equities ETF holds stocks or is a portfolio of other ETFs. These will rise and fall with the performance of the broader equities market.

Are Bond ETFs Safe if the Market Crashes?

Generally yes, bonds behave inversely to stocks. If the stock market crashes, then bonds usually act as an excellent hedge against market volatility.

Conclusion: Best Canadian Bond ETFs

Bond ETFs are an investment asset that many Canadian investors do not utilize.

If you want a balanced portfolio with diversification from equities, then Canadian bond ETFs are an excellent safe haven with reliable income payments.

There are times when a bond ETF is good and bad for your portfolio. Remember, bonds act inversely to stocks and interest rates.

Bond ETFs offer excellent stability for your portfolio but should not be counted on for long-term capital growth.

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Author

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Enoch Omololu

Enoch Omololu is a personal finance expert and a veterinarian. He has a master’s degree in Finance and Investment Management from the University of Aberdeen Business School (Scotland) and has completed several courses and certificates in finance, including the Canadian Securities Course. He also has an MSc. in Agricultural Economics from the University of Manitoba and a Doctor of Veterinary Medicine degree from the University of Ibadan. Enoch has a passion for helping others win with their personal finances and has been writing about money matters for over a decade. He has been featured or quoted in The Globe and Mail, Winnipeg Free Press, Wealthsimple, Financial Post, Toronto Star, CTV News, Canadian Securities Exchange, Credit Canada, National Post, CIBC, and many other personal finance publications.

His top investment tools include Wealthsimple and Questrade. He earns cash back on purchases using KOHO, monitors his credit score for free using Borrowell, and earns interest on savings through EQ Bank.

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