Best fixed income ETFs for Canadian investors 2025

Do you even need to invest in bonds? A couple of years ago, this was a lively debate. Fixed income performed terribly from 2021 through 2023, as inflation and interest rates shot up in the wake of the COVID-19 pandemic. When rates go up, bonds go down. Even today, now that rates have stabilized, a couple judges remain skeptical about owning conventional bond funds.

The stock market turmoil of 2025 has provided a perfect illustration of the diversification benefits of fixed income exchange-traded funds (ETFs). As equity funds plummeted, bond ETFs not only held their value but ticked upward. If you depend on your investments for income, or want to dampen volatility, bond ETFs could have a place in your portfolio.

Best fixed income ETFs 2025

ETFTickerManagement feeMERHoldingsDescription

iShares Core Canadian Universe Bond Index ETF	XBB	0.09%	0.10%	1,721	Total Canadian bond market, 70%+ government bonds, 7.5-year average duration
iShares Core Canadian Short Term Bond Index ETF	XSB	0.09%	0.10%	676	Safer, shorter duration (2.7 years) so less sensitive to interest rate changes/less volatile
BMO Aggregate Bond Index ETF	ZAG	0.08%	0.09%	1,682	Low fee, 7.5-year average duration, government and corporate bonds
Vanguard Short-term Canadian Bond ETF	VSB	0.10%	0.11%	547	Short 2.6-year average duration reduces your risk in troubled times

Though generally less volatile than equity funds, fixed income ETFs nonetheless come in a range of risk and return profiles. The longer the duration of the bonds in the fund, the greater the risk and potential return. That’s probably why two short-term bond funds, the iShares Core Canadian Short Term Bond Index ETF (XSB) and Vanguard Short-term Canadian Bond ETF (VSB), came in tied for first and third, respectively, in our survey. These funds, which hold bonds maturing in five years or less, will be less volatile than average.

If you’re seeking higher yield and are prepared to put up with more ups and downs, our ETF judges chose the iShares Core Canadian Universe Bond Index ETF (XBB) and BMO Aggregate Bond Index ETF (ZAG) as well. These are blanket bond market funds that hold both government and corporate bonds across the full duration spectrum. These are not long-term bond ETFs, though, so Canadian investors should consider these to be moderate risk, moderate duration funds. In all cases these funds have low management expense ratios, which is important when medium term bond yields are under 4%.

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Read more on investing:

The best online brokers in Canada A guide to the best robo-advisors in Canada The best TFSAs in Canada The best RRSP investments

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