Bond ETFs: A weapon in the fight against low rates?

If you're in term deposits, do Bond ETFs offer a defence against falling interest rates? Richard Livingston investigates, via Sun Tzu's art of war.

Sun Tzu in Current yield is simply a reflection of coupon (interest) rates at the date the underlying bonds were originally issued. If an ETF is paying a premium to face value to buy bonds now (quite likely) then the current yield will be higher than the yield to maturity —the rate of return you’ll actually get.

What we should focus on is ‘average yield to maturity (YTM)’ and ‘weighted average term to maturity’. These figures show what the current portfolio is expected to return, and over what time frame.

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