Reread your post and you'll have your answer. "Longer term investment" and "short term bond ETFs" are your clues.I've been trying to figure out what the best option is for bonds in my daughter's RESP. For this longer term investment strategy, do people actually sell their regular bonds and buy short term bond ETFs, or do they just buy short term bonds as they rebalance the portfolio?
Part of a balanced portfolio, means having non-correlating assets. That usually means that part of your portfolio will under perform, while other assets do relatively well. In a small part the poor performance will be mitigated by having chosen the option to have the dividends (interest) reinvested, as you will be continuing buying the new units at reduced prices. But that being said, part of the problem with the e fund strategy is they only have one bond product. Especially in this environment, it is safer to have a portion in short-term bonds and inflation protected bonds. With my kids RESP, which is also mostly an e-fund account, I've bitten the bullet and paid a slightly higher MER to have most of the bond amount in the TD short term bond fund (which is not available in an e-fund). In my regular account, I've chosen the Ishares and Claymore short term bond products, but with my RESP account, I will be needing that money in a few years, or may want to switch part back to one of the e-funds, so I figured it just simpler to not mess with commissions and get the TD short term bond fund.So I've noticed the market vale of CND Bond Index on my e-series accounts is falling, with anticipation of the upcoming interest rate hike. Question is, how low will they go? How much will the interest payments decrease?
The increase in interest rates will not be parallel across all tenors of bonds. The yields on long-dated bonds (i.e. 10+ years term to maturity) are typically not very sensitive to changes in short term interest rates. While I do expect to see a small uptick in long-term yields, I am expecting more of a flattening of the yield curve than a parallel rise. Currently, the yield curve is relatively steep.If rates rise, the payments ought to increase (very slightly), but the value will fall so that the yield is a higher %.
If you're in a longer duration product, you might want to look at something that has a shorter duration. On the other hand, this is probably already priced it, if rates rise faster than the market expects, you might lose more capital.