A Perfect Storm For Fixed Income Returns


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For almost a decade and a half of near-zero interest rates, advisors and investors saw fixed income losing its utility as a retirement solution or a component of a balanced portfolio. The 60/40 fell out of favour as other solutions hit the market to deliver the yields investors couldn’t get from fixed income. These assets were, primarily, a tool for capital preservation.

That dynamic has changed dramatically over the past two years. Inflation and steep interest rate hikes introduced volatility and opportunity to the fixed income market. As interest rates appear to be peaking, and speculation rages around central bank interest rate cuts, now may be time to take money that has accumulated on the sidelines in guaranteed investment certificates (GICs) and money market funds to assets with better long-term potential.

Today's fixed income opportunity is very compelling for two key reasons. This first is with rates where they currently are, bonds are currently providing investors with income not seen in more than a decade. Investors have a rare opportunity to lock in historically high yields as central banks reach the end of their hiking cycle. This, along with the potential for capital appreciation if rates fall, can provide a very attractive total return opportunity, or a "perfect storm for fixed income returns". This is because bond prices have an inverse relationship with interest rates. This means that, typically, when interest rates go up, bond prices go down and when interest rates go down, bond prices go up.

"Targeting" the current investing environment
To take advantage of the opportunities present in today's fixed income market, TD Asset Management Inc. (TDAM) has launched a suite of TD Target Maturity Bond Exchange-Traded Funds (ETFs). These ETFs (offered in both Canadian and U.S. dollar versions) invest in a portfolio of investment-grade corporate bonds which are hand-picked by TDAM's Fixed Income Investment Team, offering increased diversification and the chance to help generate higher yields when compared to other fixed income products.

As the name suggests, the TD Target Maturity Bond ETFs purchase bonds that have a common maturity date (successive years from 2025 to 2027) so when the ETF's maturity date arrives, the fund closes, and investors receive their principal just as they do with individual bonds. The income received is relatively stable because the ETF typically doesn’t need to replace holdings along the way. Additional benefits and considerations include:

  • Ease of execution - TD Target Maturity Bond ETFs trade can be easily purchased on the stock exchange with no minimum purchase amounts at a low-cost giving you the desired bond exposure.
  • Improved liquidity - Unlike holding a basket of individual bonds that may be less liquid in the secondary market, the ETF structure allows investors to easily trade and adjust their bond exposure in response to changing market conditions or evolving investment objectives.
  • Enhanced flexibility relative to GICs - The current environment has led many individuals to ‘lock in’ with fixed term GICs, which can’t be cashed in before maturity. TD Target Maturity Bond ETFs are a more flexible investment alternative as they provide daily liquidity through the exchange.
  • Potential for tax-efficiency - With many corporate bonds trading at a discount, a portion of the total return can be treated as capital gains as opposed to interest income which is taxed at higher rate.
  • Aligning investment time horizons – The TD Target Maturity Bond ETFs provide the ability to match the time horizon of the investor with the maturity date of the ETF, which allows investors to save for specific financial goals or needs.
  • Build better laddered portfolios – TD Target Maturity Bond ETFs are an efficient way to help build a laddered portfolio to manage interest rate and/or reinvestment risk.

Quick ComparisonTD TMB ETFsIndividual BondsGICsTraditional Bond Funds
Defined Maturity
Ability to Bulk Trade
Monthly Income
Ease of Execution

For more information on the suite of TD Target Maturity Bond ETFs, please visit our website.

The information contained herein has been provided by TD Asset Management Inc. and is for information purposes only. The information has been drawn from sources believed to be reliable. Graphs and charts are used for illustrative purposes only and do not reflect future values or future performance of any investment. The information does not provide financial, legal, tax or investment advice. Particular investment, tax, or trading strategies should be evaluated relative to each individual's objectives and risk tolerance.

Commissions, management fees and expenses all may be associated with investments in exchange-traded funds (ETFs). Please read the prospectus and ETF Facts before investing. ETFs are not guaranteed, their values change frequently, and past performance may not be repeated. ETF units are bought and sold at market price on a stock exchange and brokerage commissions will reduce returns.

Certain statements in this document may contain forward-looking statements (“FLS”) that are predictive in nature and may include words such as “expects”, “anticipates”, “intends”, “believes”, “estimates” and similar forward-looking expressions or negative versions thereof. FLS are based on current expectations and projections about future general economic, political and relevant market factors, such as interest and foreign exchange rates, equity and capital markets, the general business environment, assuming no changes to tax or other laws or government regulation or catastrophic events. Expectations and projections about future events are inherently subject to risks and uncertainties, which may be unforeseeable. Such expectations and projections may be incorrect in the future. FLS are not guarantees of future performance. Actual events could differ materially from those expressed or implied in any FLS. A number of important factors including those factors set out above can contribute to these digressions. You should avoid placing any reliance on FLS.

TD ETFs are managed by TD Asset Management Inc., a wholly-owned subsidiary of The Toronto-Dominion Bank.

TD Asset Management Inc. is a wholly-owned subsidiary of The Toronto-Dominion Bank.

®The TD logo and other TD trademarks are the property of The Toronto-Dominion Bank or its subsidiaries.

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