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Updated 2mo ago.
Updated 2mo ago.
A government bond is a debt security issued by a government (federal or provincial) to fund its spending. The investor lends money to the government in exchange for regular interest payments and the return of principal at maturity. It is considered one of the safest investments.
The Government of Canada issues bonds with various maturities. The ZFL.TO ETF (BMO Long Federal Bond) holds long-term Canadian federal bonds. If you buy a 10-year Canada bond with a 3% coupon, you receive $30 per year for every $1,000 invested.
Provincial bonds (Ontario, Quebec) generally offer slightly higher yields than federal bonds because the risk is marginally greater. The ZPS.TO ETF (BMO Short Provincial Bond) holds several of these.
Government bonds form the foundation of the "fixed income" portion of a portfolio. They act as a cushion when stock markets decline. For beginner investors, a government bond ETF like ZAG.TO is often recommended to balance the risk of an equity-heavy portfolio.