Buy Bond ETFs on the TSX

Choosing bond ETFs is a simple process at  You should look for bond ETFs that are the most liquid since these are the easiest to sell.  The ETF Screener is under Investor Tools under Investor Tools.

The Asset Class is Fixed Income.  The other filters can be changed to meet your criteria.

Using‘s ETF screener, you click on 3 view my list to see the list of bond ETFs available. You can sort the list with the most liquid ETF first by clicking on the liq header.  XSB.TO shows up as the most liquid.

When it comes to buying or selling, you must enter in the ticker name plus the exchange.  Therefore,

  1. The ticker symbol is XSB
  2. The exchange is TO (Toronto Stock Exchange).  The default exchange is a USA exchange if TO is not used.

To buy XSB.TO, You can either buy for $28.14/share or join the others at $28.13.  You can offer a lower buy price, but the chances of getting XSB.TO today decreases the lower your offer goes.

Always use Limit to tell the broker that you want to buy XSB.TO for a specific price only.  You can use LOC to keep the order open until you cancel which can be up to 90 days.

If you enter XSB, only the TO version is on the list.  For others where the ticker is listed in the USA exchange also, the ticker symbol will have no exchange.  For example, SU will buy Suncor on the NYSE in USD while SU.TO will buy Suncor on the TSX in CAD.  Therefore, always add .TO to every order to ensure that your buying the security on the TSX.

When it comes to buying bonds, you must understand the basic rule of the price of a bond.  When the interest rates go up, the bond price goes down.  Therefore, in an increasing interest rate environment, buying bonds is a losing money proposition.

Fortunately, the shorter the time before the bond matures, the less impact an increasing interest rate environment will have on the bond.  Therefore, if the interest rate increase by say 1%,:

  • a $100 bond that matures in 3 years may go down by $2.
  • a $100 bond that matures in 50 years may go down by $30.

The amount the price of a bond drops depends on the buyers and the sellers emotions.  There are cases where the traders do not believe the interest rate will be hiked again but drop later on, so the price of the bond may remain stable.

As a general rule, the shorter the duration of the bonds held, the less the price will fluctuate up and down.  The longer the duration of the bonds held, the more the price will fluctuate up and down.

With the last traded price of $24.90 with zero bid or sellers, it will be very difficult to buy or sell this bond for a decent price.  Fortunately, a few hours later, there are some offers.  The spread between the bid, $24.86, and ask, $25.09 is 23 cents.

There are trades being done, but very infrequently.  Therefore, VBU.TO, which is an ETF with the lowest liquidity should be avoided since it is difficult to buy and sell for a decent price.

VBU.TO has been trading since July 2014.

Using a money market ETF as a baseline, you will see that the long-term bond ETF fluctuates much more than the short-term bond ETF.  Therefore, the longer the maturity of the bond, the more volatile the bond will be.  For example, lets assume there are two bonds that are $100 each.  Furthermore, they mature in 5 and 30 years.  If the prime rate in Canada increases by 1% (100 basis points) with the fed planning on more hikes in the near future, the 5 year bond price will decrease by 1% while the 30 year bond price will decrease by 10%.  Therefore, longer terms = higher fluctuations.

The interest (coupon rate) paid out on the bonds are static.  Therefore, if the 5 year bond pays 5%/year or $5/year while the 30 year bond pays 10%/year or $10/year, the interest (coupon rate) will still be the same, but the percentage per year will be higher to reflect the drop in the bond price.  In the example above where the 5 year bond decrease by 1%, the bond price is $99 with an interest of $5/year.  The 30 year bond price is $90 with an interest of $10/year.  Therefore, the interest (coupon rate) does not change.  The percentage paid out per year changes.

When Greece was insolvent in March of 2012, and the bond investors were trying to offload their Greece Government bonds on the open market, the coupon rate was 1000%/year.  Therefore, a $1 Greece Government bond will yield $10/year.  This is assuming Greece is able to pay the interest owed.

Bond basics tutorial from Investopedia’s University

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