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Anyone buying bond ETFs at the current time is likely buying high. I say likely because who knows how low the yield curve can actually go... to zero?
We don't know if it's too high. Bond funds will continue performing well from today going forward, in any of these scenarios:

(a) interest rates stay low and don't do much from here
(b) interest rates very gradually creep higher
(c) interest rates stay low and the yield curve steepens
(d) interest rates fall further, to zero or negative

Everyone focuses on case (d) but that is not the only situation in which bond funds do well. Even if interest rates gradually move higher, bond funds will do well. And people don't seem to understand that the yield curve steepening (c) would be tremendously good for bond funds. They start rolling every maturing bonds into progressively better yields.

For all we know, this could be an excellent entry point into VAB. This could even be the best entry point for the rest of your life... we have no idea.
 

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I would only buy the bond funds if the intention is a long term (minimum 10 or 20 year) holding. Whether the price falls in the next few months or years should not be a concern.

If it's a long term time horizon, you should put the cash into the bond fund without thinking too hard about the timing. It's just about impossible to time these things. Bond funds will be volatile, and will have negative returns over short periods. But over the long term, funds like VAB are virtually guaranteed to beat cash returns.

It's no different than stocks. If you're supposed to have a stock allocation, then you should deploy your money into stocks as soon as you have the money. This isn't to get a positive return in the next months, it's to benefit from the 20+ year performance.

Same for bonds. If you're supposed to have a bond allocation, deploy the cash into bonds without trying to time your entry.
I agree with your comments. It's the totality of the portfolio that matters. If stocks go down for the next decade, an investor is supposed to rebalance into stocks, happy to buy low and setting themselves up for the next "glorious" decade of returns (think about buying stocks in March 2003 or 2009). Same goes for bonds. The investor is supposed to rebalance into them and buy more when interest rates rise (and prices fall) until prices reverse course. Unless we never see 0 interest rates again, they will be "buying low and selling high." Isn't that all we strive for?
 

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We don't know if it's too high. Bond funds will continue performing well from today going forward, in any of these scenarios:

(a) interest rates stay low and don't do much from here
(b) interest rates very gradually creep higher
(c) interest rates stay low and the yield curve steepens
(d) interest rates fall further, to zero or negative

Everyone focuses on case (d) but that is not the only situation in which bond funds do well. Even if interest rates gradually move higher, bond funds will do well. And people don't seem to understand that the yield curve steepening (c) would be tremendously good for bond funds. They start rolling every maturing bonds into progressively better yields.

For all we know, this could be an excellent entry point into VAB. This could even be the best entry point for the rest of your life... we have no idea.
In the case of a), there is no return, perhaps 1-2% yield
In the case of b), likely the only real sweet spot...gradual rising of the yield curve
In the case of c), headwinds on VAB total return
In the case of d), a short term boost to total return

One just has to look at the price history of VAB to see that it is priced near all time highs. This is okay if this is a long term hold of duration or longer. We don't know what the OP's intent is. If it is only to hold fixed income for a short period of time such as months, I'd suggest there is more than a 50% probability of a negative total return.

The OP needs to clarify intent...which is what I am attempting to address... not the merits of bond ETF investing in and of itself.
 

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Bloomergs barclays U.S aggregate Corporate duration is @ a record 8.6 Bond duration is a measure of how sensitive bond prices are to interest rates. Never before has it been so dangerous to hold bonds since they are now most sensitive to a rise in interest rates.
 

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Discussion Starter #26
The OP needs to clarify intent...which is what I am attempting to address... not the merits of bond ETF investing in and of itself.
I'm getting older and want to start increasing my fixed income position. Using dividends is an "easy" way to do that, instead of going and explicitly rebalancing.
 

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I'm getting older and want to start increasing my fixed income position. Using dividends is an "easy" way to do that, instead of going and explicitly rebalancing.
As LTR says, dividend are not fixed income. They are simply investment income off an equity asset which is volatile. But I don't think you actually mean that literally. I am interpreting your statement to mean that using investment income you receive, e.g. dividends, to exclusively re-invest into fixed income is a way to increase your FI allocation.

If you truly want to increase your fixed income assets, and this is a long term objective of 10 years or more, consider buying a bond ETF like VAB in $2k tranches to keep commission costs down, or start building a 5 year GIC ladder, $5k at a time. Invest in a new 5 year GIC every time you have $5k available (I mention $5k because that is normally the minimum investment for GICs at a discount brokerage). After 5 years of investing in new GICs, you will have a fully operation GIC ladder and the original GIC you invested in 5 years ago is maturing and ready for re-investment in a new 5 year GIC.

If you are looking short term, less than 10 years, then a short term bond ETF or a 5 year GIC ladder is likely your best options. My fixed income allocation is about 50% short term bond/GIC ladder (registered) and 50% HISA mostly at EQ Bank (non-registered). At this point in time, my bond/GIC ladder is yielding 3% and my HISA 2%, but the yield on my bond/GIC ladder will decline as bonds/GICs mature and have to be re-invested at lower rates. EQ Bank is likely to lower its HISA rate pretty soon (all the online banks/CUs are doing that).
 

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My bond allocation is broken down 50/50 between long and short - CLF and ZFL/ZPL.

I would agree that holding long bonds right now is a risk, if rates rise, but I don't feel the economy is stable enough to even contemplate such a move. Thus I feel holding long bonds is reasonable.

Depending on COVID this fall and economic growth, I might marginalize the duration, but I also think that things could get worse & if they do there will be either negative rates or more QE.

Our 30+ year trend is lower rates and until someone can give a compelling position why that will change, I have a level of comfort believing that while rates may rise a bit, overall our society is addicted to and demands ever lower rates.

If you think that the duration on CLF is 2.5 yrs and ZFL is 20, I am sitting on an ~11 yr average duration.... VAB is probably 8-9 yr duration so my exposure is, in reality, not much different.

If I felt that inflation were going to arrive in the short term 6 mo or less I would probably sell my long bonds......

Also, I might be swayed to decrease my duration if the long end of the curve were to start steepening.... I can lengthen my duration later....

FYI, if you have a 5 yr GIC ladder running, you are 'basically' the same as CLF..... only differences being that my unit values do fluctuate, but mine offers better liquidity if needed. I'd also argue that smaller CUs that offer good rates that people are consuming have a mild risk of insolvency, and that risk increases in provinces that have inflated RE values.

You cant tell me that most of these 2% HISA and 2%+ GICs are not simply supporting MBS. Stable today but way different risk factors than short term govt bonds.... at least the govt can print me my money. Its a 0.5% sacrafice for peace of mind right now in tumultuous times.

* Having said all that I am using Hubert for their HISA @ 2% for a short duration cash position ($45-50k). I am watchful of markets though.
 

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Discussion Starter #30
But dividends aren't fixed income.

ltr
I know. I'm taking the dividends and investing them in fixed income.

"What are people doing with their Fixed income portion these days?
I've got lots of dividends etc that should be swept up into something,..."

Maybe that's not the clearest wording, but what I'm thinking is that if I take my dividends, and put them into fixed income, that's a simple way to slowly increase my fixed income allocation, without engaging in an explicit re-balancing exercise.
 

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OK, I misunderstood. As long as you don't need the income from the dividends it's a good way to get cash to increase your allocation to fixed income.

ltr
 

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I know. I'm taking the dividends and investing them in fixed income.

"What are people doing with their Fixed income portion these days?
I've got lots of dividends etc that should be swept up into something,..."

Maybe that's not the clearest wording, but what I'm thinking is that if I take my dividends, and put them into fixed income, that's a simple way to slowly increase my fixed income allocation, without engaging in an explicit re-balancing exercise.
If I were to do it and the dividends were small amounts (less than a couple of thousand dollars), I would sweep them into a low fee bond mutual fund (e-series for example). Larger amounts, I would buy a government (or broad) bond fund with it. You may however be able to get a better yield with a GIC ladder if you are willing to set one up and maintain it.
 

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I know. I'm taking the dividends and investing them in fixed income.
. . .
Maybe that's not the clearest wording, but what I'm thinking is that if I take my dividends, and put them into fixed income, that's a simple way to slowly increase my fixed income allocation, without engaging in an explicit re-balancing exercise.
Now I understand. You should use a low fee bond mutual fund (like e-series TDB909) and check that it has a small enough minimum purchase $ amount for your needs. I think TDB909 allows purchases as small as $100.

I've done this in the past as well and it's very convenient. It means that even if a few dollars appears, you can immediately roll it into your bond allocation without worrying about trade fees. Make sure you check the 'automatically reinvest' box on the mutual fund, of course.

Then, once the accumulated size becomes large enough, sell the mutual fund units and move the money into a bond ETF like VAB, XBB. In the mean time, it's perfectly fine holding the mutual fund.

If you use e-series, just make sure you hold a minium of 30 days to not get dinged with a minimum holding / early redemption penalty.
 

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Discussion Starter #34
Now I understand. You should use a low fee bond mutual fund (like e-series TDB909) and check that it has a small enough minimum purchase $ amount for your needs. I think TDB909 allows purchases as small as $100.

I've done this in the past as well and it's very convenient. It means that even if a few dollars appears, you can immediately roll it into your bond allocation without worrying about trade fees. Make sure you check the 'automatically reinvest' box on the mutual fund, of course.

Then, once the accumulated size becomes large enough, sell the mutual fund units and move the money into a bond ETF like VAB, XBB. In the mean time, it's perfectly fine holding the mutual fund.

If you use e-series, just make sure you hold a minium of 30 days to not get dinged with a minimum holding / early redemption penalty.
Unfortunately my registered investments aren't at TD today.
 

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IIRC, TD re-structured their TD e-funds to be available at many discount brokerages. It is just a question of whether BNS or BMO actually carry them. I've never 'tested' a potential purchase at either brokerage.
 
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