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In the process of re-doing my portfolio. When I purchase bond ETF is it important to diversify (i.e. Cdn ETF and US ETF) or does it matter? I believe that credit risk and duration are the most important risk factors for bonds but was wondering if I should be diversifying the bond portion of my portfolio.

I'm not really concerned about the exchange issue at this point.

Thanks in advance.
 

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While diversification within an asset class is generally a good idea, you should consider the benefit against the added cost that may come from it. Check the MERs on the Canadian and US bond ETFs. I'm not sure how much the extra diversification is worth in terms of fees. It depends upon how correlated the returns on the two ETFs are. If they are highly correlated, as should be the case for Canadian and US bond ETFs, then you should not be willing to pay much in additional management fees.

In addition to the problem of fees, there are also tax issues to consider. I'm pretty sure that interest payments on US bonds held by foreigners (Canadians) are subject to US withholding tax. That will probably eat up about 15% of your return. Depending upon which type of account you hold the bond ETFs in, that tax may or may not be recoverable.
 

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I see no benefit from holding US debt in the 'safe' asset-allocation portion of your portfolio. You expose yourself to FX risk with no offsetting return.

But I do see a benefit from holding both government and corporate debt. Example. In the 2008 credit crisis it was ONLY the government debt securities that held up. The corporates tanked right along with the common stocks. In the 2009 rebound, government debt did poorly while corporate debt did just as well as common equity with less risk.
 

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Agree with the above posters.
Moving forward, are you expecting significant returns in foreign bonds vis-a-vis Canadian bonds?
Interest rates in most of the developed, industrialized world are very low right now, and most likely will stay that way for some time.
Interest rates in developing countries experiencing rampant inflation (like India, Brazil, etc.) are high but then those bonds are also riskier.
Even historically, global bond funds have pathetic returns.
For example, the Scotia Global Govt. bond index fund has returned less than 2% annualized in the previous 10 years and 3% in the last 15 years.
 
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