John HoodBMO Long Federal Bond IndexZFL.TODON'T BUYJan 28, 2011

The largest ETF giving you exposure to purely CAD long bonds. Same theme as the TLT.

Canadian federals, a growing category. Good way to add in alongside cash and take on some duration-risk exposure. Barbells in a bit of rate risk in a capital-efficient way. One of the few asset classes in a portfolio that would zig should the market zag into a recession.

Bonds offer a nice diversification against a recession or slowdown in economic growth. ZFL pays a 3.6% yield, so it offers investors a solid yield while central banks determine their final monetary policy decisions. Largely, we think that we are near the end of the hiking cycle, inflation is coming down, it is near the target rate of 2%, and while the consumer is resilient, a tightened credit market can lead to negative outcomes occurring eventually, and bonds are essentially insurance against this. It's possible that the BoC increases rates two or more times by the end of the year, however, if inflation slows faster than expected, these goal posts may change and thus bond prices can be buoyed. We would be comfortable holding bonds here as insurance, however, we would prefer to wait until Canada's next inflation reading as well as the BoC decision to add to the position.
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