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Best bonds to watch for investors and traders

Are these the best bonds to watch for investors and traders? In uncertain times, investing in bonds can offer steady, stable returns. Learn how to add them to your portfolio and discover some of the best bonds to watch.

What's on this page?

Background to bonds

Bonds are essentially an ‘I owe you’ that are issued by a country or company to raise capital. When you buy one, you’re loaning the issuer your money for a set period of time.

In return, they make regular payments (called the ‘coupon’) to you, before giving you back your original investment once the bond reaches its expiry (‘matures’).

Bonds come in two broad categories:

  • Government bonds are issued by countries. These tend to be seen as very safe, especially when attached to a large economy such as Germany or the US
  • Corporate bonds are issued by companies. These are usually riskier than government bonds – the level of risk depends on the issuer

Conversely, higher risk can lead to higher returns and greater losses. This is why it’s important to have a risk management strategy in place.

Why buy bonds?

Bonds can make good investments for two reasons:

  1. Diversification
  2. Interest rates


Investors use government bonds to diversify their portfolios, as countries rarely default on their debts – although this can happen. For example, in 2020, Argentina, Ecuador and Lebanon defaulted, most notably due to the coronavirus pandemic, although this was not the only factor.

When recessions or bear markets arise, individuals will often flee equities for ‘safe-haven’ assets, including bonds. This causes their prices to rise. If your portfolio already holds bonds in this instance, any equity losses you see may be partially offset by profits from your safer holdings. Plus, the relative stability of bond prices reduces overall volatility in a portfolio.

Interest rates

When newly issued bonds have lower interest rates, the price of existing bonds goes up because there's a greater demand for them. When interest rates on new bonds are higher, the value of existing bonds goes down because their demand drops.

While this means bonds are subject to interest-rate risk, it also makes them useful for traders who want to hedge against interest rate movements.

Learn more about the relationship between bonds and interest rates

Buying bonds: investing vs trading

When you invest in bonds, you own the underlying asset. When you trade bonds, you aren’t directly buying them. Rather, you take a ‘buy’ position if you think the bond’s value will rise or a ‘sell’ position if you think it will fall.

Investing in bonds

By investing in bonds, you’re buying them outright and adding them to your portfolio. Doing this with the issuers themselves can be an expensive process, with minimum lots of £100,000 in most cases. To counter this, many individual investors will invest via a fund, such as a bond exchange traded fund (ETF).

Bond ETFs pay a regular dividend – in a similar way to a bond’s coupon – and move up or down in value as their underlying holdings move in price. But, because ETFs trade on exchanges, they are much easier to buy and sell. So you get the benefits of bonds, plus added liquidity and transparency.

There are a wide number to choose from, ranging from groups of high-yield corporate bonds to individual UK gilts.

There is one key difference between bonds and bond ETFs to be aware of, however. While the former will mature and pay you your money back, ETF investments last indefinitely.

Open an account to start investing in bond ETFs

Trading bonds

When you trade bonds, you’re using derivatives such as spread bets or CFDs to speculate on their price movements without taking ownership of any underlying assets.

This means you can go long if you think bond prices are likely to rise and short if you think they’ll fall. Say you believe that an upcoming interest rate hike from the Bank of England (BoE) is set to hurt gilts. You could open a short position on long-term gilts and profit if their price drops.

This makes trading bonds particularly useful for hedging. If you have holdings in your portfolio that might suffer from rising interest rates, you can short bonds to offset the risk.

Leveraged products like spread bets and CFDs also enable you to put up a fraction (called the margin) of the total cost of the position. This can amplify your profits but it can also magnify your losses. To short £5000 worth of long-term gilts, for example, you only have to put down £1000 as initial margin.

What are the best bonds to watch for investors?

  1. Lyxor Core UK Government Inflation-Linked Bond ETF (GILI)
  2. iShares USD Treasury Bond 20+yr ETF (IDTG)
  3. iShares USD High Yield Corporate Bond ETF (IHHG)
  4. L&G ESG Emerging Markets Corporate Bond USD ETF (EMUG)
  5. iShares GBP Ultrashort Bond ETF (ERNS)

These five bond ETFs are available via our share dealing platform, and were chosen because of the high value of their holdings. However, keep in mind that the annual yield is subject to change depending on underlying market conditions, such as interest rates.

To find your own funds, head over to our ETF screener

Lyxor Core UK Government Inflation-Linked Bond ETF (GILI)

The Lyxor Core UK Government Inflation-Linked Bond ETF tracks the benchmark index FTSE Actuaries Govt Securities UK Index Linked TR All Stocks. This index provides exposure to sterling-denominated inflation-linked bonds issued by the UK government.

Because the UK has a stable economy, this ETF is a relatively safe one to invest in. Dividends are paid twice annually, in July and December. As of 31 March 2021, the yield was -2.06%.

A negative-yielding bond occurs when the premium paid exceeds the income received at maturity. This isn’t necessarily a bad thing – an investor might buy a negative-yielding bond to diversify their portfolio. They could also sell the bond (or in this case the bond ETF shares) at a capital gain if the yield continues to fall and the price increases.

Lyxor uses physical replication, meaning the ETF holds the underlying securities of the index its tracking. This leads to the ETF closely reflecting the benchmark index’s performance. It has just over £80 million of assets under its management, all rated AA.

See the Lyxor Core UK Government Inflation-Linked Bond ETF live market price

iShares USD Treasury Bond 20+yr ETF (IDTG)

The iShares USD Treasury Bond 20+yr ETF offers exposure to long-term US treasuries, benchmarking the ICE U.S. Treasury 20+ Years Bond Index. It has 40 holdings and an investment A rating.

As of 14 April 2021, its distribution yield was 2.03% with dividends paid semi-annually. A distribution yield is different to a dividend yield in that it’s the ratio of all distributions paid over the preceding 12 months divided by the fund’s current share price. This gives a snapshot of the ETF’s yields over the previous 12 months, rather than just the percentage of the share price returned as dividends.
Its weighted average coupon (WAC) was 2.62%. This figure is calculated using the average of the underlying bonds’ coupon rates weighted by the bonds’ weights in the fund.

This ETF has a currency-hedged share class, which reduces the effects of exchange rate fluctuations between the base and hedged currency. The fund’s base currency is therefore USD, and the share class currency is GBP.

See the iShares USD High Yield Corp Bond ESG ETF live market price

iShares USD High Yield Corporate Bond UCITS ETF (IHHG)

Another share class-hedged fund, the iShares USD High Yield Corporate Bond ETF tracks the Markit iBoxx USD Liquid High Yield Capped Index. Its top holdings include Ford Motor Co and Sprint Corp.

Dividends are distributed semi-annually and as of 14 April 2021, the distribution yield was 4.85% while the WAC was 5.35%.

It has an Environmental, Social and Corporate Governance (ESG rating) of BB, which is considered average.

See the iShares USD Treasury Bond 20+yr ETF live market price

L&G ESG Emerging Markets Corporate Bond USD UCITS ETF (EMUG)

As the name suggests, L&G ESG Emerging Markets Corporate Bond USD ETF aims to provide exposure to US dollar-denominated corporate bonds in emerging markets, with holdings in countries like China, Mexico and Macau. Over 96% of its net assets are held in non-UK bonds.

It’s an open-end fund, meaning it doesn’t have a fixed number of shares in circulation, so there’s less chance of supply and demand impacting its price.

It was only launched in January 2021, which means some data is yet to be generated, such as its sustainability characteristics or its first yield figures. We included it in our list in any case because of its exposure to emerging markets and potential to perform well.

See the L&G ESG Emerging Markets Corporate Bond USD ETF live market price

iShares GBP Ultrashort Bond ETF (ERNS)

The iShares GBP Ultrashort Bond ETF invests directly in corporate bonds across sectors, such as industrials, utilities and financial companies. It also invests in quasi-government bonds, which aren’t secured by collateral.

Unlike the bonds in our other chosen ETFs, those in this one are ultrashort – typically maturing in a year or less. Investors might consider an ETF of this kind if interest rates appear likely to rise in the future, providing the opportunity to make the most out of a decent yield over a short period of time.

As of 14 April 2021, the ERNS distribution yield was 0.75% and the WAC was 1.53%, with dividends paid twice annually. The fund has a rating of AA, with shares in Barclays Bank, Imperial Tobacco and Santander making up a sizeable portion of its top holdings.

See the iShares GBP Ultrashort Bond ETF live market price

What are the best bonds to watch for traders?

As well as trading on the prices of ETFs, you can use spread bets and CFDs to speculate on individual government bond markets. Here's an introduction to what you can trade with us.

Germany: the Bund, Bobl, Schatz and Buxl

Germany’s bonds are some of the most traded and watched in the world. The Bund is its long-term offering, the Bobl is medium term and the Schatz is short term. The Buxl, meanwhile, is its ultra-long-term bond.

US: treasury bonds and T-notes

US bonds with maturities over ten years are called treasury bonds (T-bone), while Treasury notes (T-notes) have maturities of ten years or less. With us, you can trade T-bonds plus 10-, 5- and 2- year T-notes.

UK: gilts

The BoE calls its short- and long-term bonds ‘gilts’, because the original certificates had gilded edges. Typically, government gilts are issued for five, ten, or 30 years, although the UK has issued undated gilts, too, which never reach maturity and pay coupons forever.

Italy and France: BTS, BTP and OAT

France calls its bonds Obligations assimilables du Trésor, or OATs. These are medium- and long-term bonds with maturities ranging from two to 50 years. Italian bonds are known as BTPs and were first issued in 2012. You can trade long-term BTPs with us.

How to buy bonds

  1. Create or log in to your account
  2. Choose whether to invest by share dealing or trade using spread bets and CFDs
  3. Decide whether to go long or short if you’re trading derivatives
  4. Pick a bond and take steps to manage your risk
  5. Open and monitor your position

Buying bonds summed up

  • When you buy a bond, you’re lending the issuer your money. In return, they pay you a coupon and return your capital when the bond matures
  • Government bonds can yield steady, stable returns over time
  • Investors use government bonds to diversify their portfolios and to hedge against interest rate movements
  • When investing in bonds, you’re buying the assets outright
  • When trading bonds, you don’t own the underlying asset but instead speculate on its price movements
  • With us, you can invest in bond ETFs or trade on bond price movements with spread bets or CFDS

Open an account to start buying and trading bonds

This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.

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