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  5. XSB: In the current environment, when should an investor consider bonds vs. [iShares Core Canadian Short Term Bond Index ETF]
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Investment Q&A

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Q: In the current environment, when should an investor consider bonds vs. a high yield cash ETF? For example, XSB has a 2.4% yield right now whereas CASH has a 3.9% yield. CASH seems better due to the higher yield and also won't have capital losses whereas the XSB price can change.
Asked by Alexander on June 13, 2023
5i Research Answer:

There is certainly a risk tradeoff between a pure cash investment such as a GIC or HISA ETF and a bond. CASH is unlikely to incur capital losses, however, it's also unlikely to see capital gains like a bond would. Bonds can see capital gains in the event that expectations for rate decreases begin to gain traction, and we feel this would require deteriorating economic data points. Recently, economic data has been resilient, and although inflation is declining, the labour market is strong, GDP is relatively strong, and manufacturing may begin to show improvements. If the Fed or BoC begin to hint at decreasing rates more so than pausing or increasing, we feel this would create a good opportunity to begin shifting towards bonds for their capital appreciation, but this would likely require inflation at 3% or lower and slowing economic growth.