Bonds

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Hi Dan/Mat,

I’m looking to add some bond exposure to my RRSP portfolio to smooth it out a bit – with Bonds not being ideal right now due to low interest rates, would you you suggest adding a short-term bond etf, or maybe even a floating rate/real return bond index with the current inflation environment?

Any info would be helpful, thanks.

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Asked on July 4, 2021 6:20 pm
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Your line of thinking is certainly right. The shorter the length to maturity, the less impact interest rates will have on the price of the bond. If rates rise, a 20 year bond has a long way to go until it matures, where a 5 year bond doesn't.

Obviously floating/real return bonds take away a key risk, in fact arguably the biggest risk with bonds, and that is inflation/interest rates. However, you will need to understand that these products offer less of a premium. There is always a give/take proposition in these types of products. Yes, you're protected against rates rising because of the fact your coupon rate will rise as well. However, you'll get a much smaller coupon to begin with.

But as I mentioned at the start, your line of thinking is right. Many investors during a rising rate or rumored rising rate environment will head to floating rate bonds to protect themselves and reduce risk.

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Posted by Dan Kent
Answered on July 5, 2021 8:48 am