Best Bond ETFs in Singapore and Overseas for Your Portfolio

As the global economy navigates rising interest rates and uncertain stock market valuations, bonds have reemerged as a crucial component of a balanced investment portfolio.

Bond ETFs, in particular, offer investors an efficient way to gain exposure to diversified fixed-income securities, combining the benefits of bonds with the liquidity and convenience of ETFs.

Unlike traditional bonds, bond ETFs carry unique characteristics: they don’t mature, and their value can fluctuate based on interest rate movements. This adds both opportunities and challenges, requiring investors to assess factors like credit quality, geographical exposure, and dividend distribution.

With options ranging from government bonds to high-yield corporate ETFs, these instruments can serve as both a safety net and a growth engine, depending on your portfolio needs. 

What Are Bond ETFs?

Bond exchange-traded funds (ETFs) are investment funds that track a diversified basket of bonds; municipal, government or corporate (typically benchmarking against an index). Bond ETFs are traded on the stock exchange just like individual stocks. Therefore, offering investors easy access and exposure to fixed-income securities without having to make any direct purchases. 

Unlike traditional bonds, they do not mature but instead reinvest the proceeds from expiring bonds into new ones. This process, known as rolling over bonds, allows bond ETFs to maintain a consistent portfolio structure and duration, providing investors with continuous exposure to the bond market without the need to manage individual bond maturities themselves.

Bond ETFs vs Individual Bonds and Bond Mutual Funds

Bond ETFs stand out for their diversification benefits, as they encompass a mix of bonds with varying maturities, credit ratings, and issuers. This broad approach helps to reduce the risk associated with any single bond's performance. 

Unlike bond mutual funds, bond ETFs offer enhanced liquidity, enabling investors to trade them throughout the day on stock exchanges, similar to equities. Additionally, they generally come with lower management fees compared to mutual funds, making them a cost-effective choice for those seeking fixed-income investments.

Top Bond ETFs in Singapore

The Singapore bond ETF market offers a stable and well-regulated environment, appealing to both domestic and international investors seeking steady income and portfolio diversification. 

Known for its economic stability and strong regulatory framework, Singapore provides a unique bond market with features such as AAA-rated government securities, robust corporate bonds, and innovative financial products tailored to diverse investor needs.

Singapore’s bond market is characterized by a mix of government and corporate issuances. Government bonds, including Singapore Government Securities (SGS), provide high credit quality and reliability, while corporate bonds span a wide range of industries, offering varying risk-return profiles. 

A unique feature of this market is its focus on currency stability and low default rates, supported by the Monetary Authority of Singapore (MAS). Additionally, the local market accommodates both SGD-denominated and USD-denominated bonds, providing flexibility for currency-focused investors.

Bond ETFs in Singapore cater to different risk appetites and investment goals, broadly categorized into three types:

1. Government Bond ETFs: These ETFs invest primarily in SGS or other sovereign bonds, offering safety and steady income.
2. Corporate Bond ETFs: Focused on bonds issued by local and regional corporations, these ETFs provide higher yields but come with increased credit risk.
3. Diversified Bond ETFs: Combining government and corporate bonds, these funds aim to balance risk and return, making them a versatile choice for varied investment strategies.

The Singapore bond ETF market offers a diverse range of options catering to varying investment objectives. Let’s look at some of the top bond ETFs in Singapore:

*Data as of 7th Feb 2025

Top Bond ETFs Overseas

Singaporean investors often exhibit "home bias," concentrating investments within local markets due to familiarity. However, this approach may unintentionally expose portfolios to greater risks and limit growth potential. Here’s why diversifying overseas is crucial:

1. Risk Diversification: Singapore’s economy, heavily dependent on global trade, is vulnerable to external shocks like trade wars or global slowdowns. By investing internationally, you mitigate risks specific to Singapore's market, balancing your portfolio across diverse economies​.

2. Access to Broader Opportunities: International markets, such as the U.S. or Europe, provide exposure to sectors and economic growth that may outperform Singapore’s limited market scope. For instance, the U.S. stock market (S&P 500) significantly outpaced the Straits Times Index in 2019, offering more substantial returns.

3. Currency and Economic Cycle Exposure: Investing overseas allows exposure to different currencies and economies at varying stages of growth, enhancing portfolio resilience and opportunities during cyclical shifts.

4. Higher Yielding Products: Overseas markets offer diverse options such as high-yield bond ETFs and REITs, which are less prominent in Singapore. These products can provide better returns while maintaining reasonable risk profiles.

Below are some top-performing bond ETFs available internationally: 

*Data as of 7th Feb 2025

How to Buy Bond ETFs in Singapore

Investing in bond ETFs in Singapore is a straightforward process, with multiple options tailored to suit different investor preferences. Here’s how you can get started:

1. Brokerage Accounts

To purchase bond ETFs listed on both the Singapore Exchange (SGX) and U.S. markets, consider opening an account with reputable brokers such as DBS Vickers, Tiger Brokers, or Moomoo. 

2. Robo-Advisors

Platforms like StashAway provide an automated, hassle-free way to invest in a diversified portfolio that includes bond ETFs. As a robo-advisor, StashAway curates investment portfolios tailored to your risk profile, ensuring that your funds are allocated across different asset classes, including government bonds, corporate bonds, and aggregate bond ETFs.

By investing with StashAway, you gain exposure to a globally diversified bond portfolio without the need to manually select or rebalance your investments. Some of the bond ETFs included in StashAway’s General Investing are:

3. Regular Savings Plans (RSPs)

Banks such as DBS and OCBC offer RSPs that allow you to invest a fixed amount monthly into selected ETFs, including bond ETFs. This approach leverages dollar-cost averaging, making it suitable for long-term investors seeking to mitigate market volatility.

Advantages of Bond ETFs

1. Diversification

Bond ETFs invest in a basket of bonds that vary in terms of maturities, credit qualities, and issuers. This variety reduces the risk of relying on the performance of a single bond.

For instance, Singapore's ABF Singapore Bond Index Fund includes government bonds across multiple issuers, providing stability and reducing exposure to a single issuer's credit risk. Diversification also allows investors to gain access to bonds that might otherwise be difficult to purchase individually, such as international or high-yield bonds.

2. Liquidity

Unlike individual bonds or mutual funds, bond ETFs trade on stock exchanges, allowing investors to buy or sell shares throughout the trading day.

3. Cost-Effectiveness

Bond ETFs generally have lower expense ratios compared to actively managed bond mutual funds. This is because they are often passively managed, tracking a specific bond index.

For example, the expense ratio for the ABF Singapore Bond Index Fund is only 0.24%. 

4. Accessibility and Flexibility

Bond ETFs are available in various strategies, including those focused on government bonds, corporate bonds, or even ESG (environmental, social, and governance)-aligned investments.

For example, the Lion-OCBC Low Carbon ETF in Singapore caters to sustainability-focused investors while providing a fixed-income option. 

5. Regular Income

Many bond ETFs distribute dividends semi-annually or quarterly, providing investors with a steady stream of income. In Singapore, bond ETFs like the ABF Singapore Bond Index Fund offer regular payouts, with yields ranging between 2% and 3% depending on market conditions.

Disadvantages of Bond ETFs

1. No Maturity Date

Unlike individual bonds that return the principal investment at maturity, bond ETFs do not have a fixed maturity date. Instead, they continuously trade and hold a rolling portfolio of bonds as defined by their investment strategy.

This perpetual nature means investors may face price volatility over time and cannot rely on recovering the full principal at any specific point. For instance, price changes in bond ETFs can be influenced by market conditions, issuer credit changes, or broader economic events.

2. Interest Rate Sensitivity

Bond ETFs are highly sensitive to interest rate changes. When interest rates rise, bond prices—and consequently the value of bond ETFs—tend to fall. Conversely, falling interest rates can boost bond ETF prices, but investors need to be cautious about timing the market to minimize capital loss risks.

3. Capital Risk

The market price of a bond ETF fluctuates based on the value of the underlying bonds it holds. If the bonds within the ETF decline in value due to factors such as issuer credit downgrades or rising default risks, the ETF’s price will reflect these losses. Capital risk is particularly relevant for high-yield or corporate bond ETFs, which carry greater credit risk compared to government bond ETFs.

4. Tracking Error

Bond ETFs aim to replicate the performance of their benchmark index, but discrepancies can arise due to management fees, transaction costs, or imperfect portfolio alignment.

For instance, bond ETFs listed on the SGX may underperform their indices slightly, with annual tracking errors often ranging from 0.1% to 0.3% depending on the fund's structure and strategy. This means the actual returns may slightly deviate from the benchmark.

5. Limited Control

Investors in bond ETFs do not have direct control over the selection of bonds within the fund. The fund manager follows the index or investment strategy, which may include bonds of varying credit quality, maturities, or sectors.

This lack of control can result in exposure to unwanted risks or bonds with lower creditworthiness. However, diversified bond ETFs reduce reliance on any single issuer, offering some buffer against adverse events.

The Role of Bond ETFs in a Balanced Portfolio 

Bond ETFs play a vital role in constructing a well-diversified and balanced portfolio, offering stability and specific benefits that align with the financial goals of both new and seasoned investors in Singapore. Here's how bond ETFs contribute to key investment priorities:

1. Risk Management

Bond ETFs help reduce overall portfolio risk by offering stability and acting as a buffer against the volatility of equities or other high-risk assets. For example, government bond ETFs, such as the ABF Singapore Bond Index Fund, are backed by AAA-rated government securities, making them highly reliable during economic uncertainty.

Additionally, by spreading investments across a basket of bonds with various issuers and maturities, bond ETFs inherently lower the impact of any single bond’s performance. This makes them particularly appealing to risk-averse investors looking to mitigate potential losses in their portfolio.

2. Income Generation

One of the key attractions of bond ETFs is their regular income distributions. Many bond ETFs provide semi-annual or quarterly payouts, which are particularly appealing to investors seeking passive income.

In Singapore, bond ETFs like the ABF Singapore Bond Index Fund or iShares Barclays USD Asia High Yield Bond ETF offer dividend yields ranging from approximately 2% to 5%. These payouts provide a steady income stream, making bond ETFs suitable for retirees or those pursuing financial independence through consistent income generation.

3. Inflation Protection

Inflation erodes the purchasing power of fixed-income investments, but certain types of bond ETFs can offer a hedge. For example, ETFs investing in inflation-linked bonds, such as U.S. Treasury Inflation-Protected Securities (TIPS), adjust their payouts based on inflation rates.

For Singaporean investors, bond ETFs with a focus on shorter-duration or inflation-linked bonds help maintain real returns in an environment of rising prices. While these funds may not fully eliminate inflation risk, they provide a cushion compared to traditional fixed-income securities.

Key Factors to Consider When Selecting a Bond ETF

1. Expense ratio 

When selecting a bond ETF, it's vital to assess and evaluate its expense ratio. Expense ratio represents the cost of managing an ETF; the lower expense ratios, the more of your investment is put to work and even the smallest changes in expense ratio can significantly impact your long-term returns..

However, it's also important to adopt a comprehensive approach when choosing an ETF. While a low expense ratio can be appealing, it should not be the sole determining factor. Investors should consider other key elements, such as the ETF's strategy, underlying assets, historical performance, tracking error, liquidity, and alignment with long-term goals. 

Balancing these factors will enable investors to make informed choices that optimize both cost-efficiency and strategic investment alignment. Taking a well-rounded view ensures a stronger and more tailored investment decision rather than focusing solely on one financial metric.

2. Yield and Distribution Frequency

When investing in bond ETFs, understanding the yield and the frequency of their income distributions is critical. Yield represents the income investors can expect from an ETF, usually expressed as an annual percentage based on its historical performance. However, bond ETF yields can fluctuate depending on several factors, so it’s essential to analyze them critically to make informed decisions.

The SEC yield and trailing twelve-month (TTM) yield are two metrics used to evaluate bond fund returns, but they offer different insights and serve distinct purposes. 

SEC yield provides a forward-looking estimate of income, reflecting the interest earned by a bond fund over the past 30 days, adjusted for expenses, and annualized. This metric helps investors gauge potential future income, making it a preferred tool for current decision-making as it aligns with the fund's current conditions and prevailing interest rates.

In contrast, the TTM yield measures the income distributed over the past 12 months, divided by the fund's net asset value (NAV). It is retrospective, offering insights into historical performance. However, this backward-looking nature can be misleading, as it may not accurately represent the fund's current or future yield potential, especially in changing market environments.

Here’s an example of how the two yield calculations differ from each other:

The distribution frequency is equally important. Bond ETFs distribute income at regular intervals, typically quarterly or semi-annually, depending on the specific ETF and its underlying securities. Understanding the payout schedule allows investors to align their income expectations with their financial goals. 

Additionally, capital gains distributions, securities lending income, and changes in shares outstanding can impact these payouts. Therefore, investors should always review the details behind the yield calculations and distribution trends to avoid assumptions based on past performance alone.

3. Credit Quality

Credit quality is a key factor that determines the risk-return profile of bond ETFs. It assesses the likelihood that a bond issuer will default on its obligations. Bonds are categorized into investment-grade bonds (safer with lower yields) and non-investment-grade bonds (high yield), which carry higher risk but offer higher interest rates to compensate investors. The spread between these two categories can fluctuate over time, impacting potential returns.

A high credit-quality bond ETF minimizes the risk of default but offers more modest yields, providing stability and lower volatility. Conversely, lower credit-quality bond ETFs expose investors to greater default risk but offer higher yields, making them attractive during periods of risk-on market sentiment. 

Inflation and liquidity risks compound these factors, as high-yield bonds tend to be more volatile and sensitive to economic shifts, especially during periods of rising inflation or changes in monetary policies. Which is why it is vital for investors to understand credit quality, as it will directly impact  risk-return trade-offs within bond ETFs.

4. Fund size (AUM) and Liquidity

The Assets Under Management (AUM) of a bond ETF reflects the total market value of assets managed by the fund and plays a vital role in assessing its performance and reliability. A larger AUM typically signals investor trust and fund stability, as well-established funds tend to attract more capital.

Funds with high AUM generally offer better liquidity, making it easier for managers to handle large transactions without impacting the market price significantly. High liquidity ensures that bond ETFs can be bought or sold quickly without causing significant price movements. This is particularly important for investors needing to execute large transactions efficiently. 

In addition to faster transactions, during periods of market stress, liquidity will help maintain the stability of bond ETF prices. Illiquid securities may face greater price volatility, exacerbating risks for investors.

So, by evaluating all the said aspects, it allows investors to assess a fund's stability, cost-efficiency, and capacity to manage risks during market stress. Together, these factors are crucial in selecting bond ETFs that align with financial goals and market dynamics.

5. Tracking Index

Choosing the right bond ETF begins with assessing the index it tracks, as this determines the fund's performance and alignment with your investment goals. The tracking index represents a basket of securities the ETF aims to mirror, influencing returns, risk exposure, and diversification.

Different indices cater to specific market segments, such as government bonds or corporate debt. For example, an ETF tracking the Bloomberg U.S. Aggregate Bond Index offers broad exposure to investment-grade bonds, while others may focus on high-yield or emerging market debt​.

Also, A fund's ability to replicate its index is crucial. Tracking errors, caused by factors like management fees or market conditions, can lead to deviations between the ETF's performance and its index.

Tracking errors will then impact expense ratio and cost implications; indices with high turnover or illiquid assets may result in higher fund management costs, impacting returns. Evaluating the expense ratio alongside tracking error ensures better efficiency and cost management.

6. Currency Exposure

Currency exposure is a critical consideration for investors in bond ETFs, especially when these funds include international assets. This exposure arises from the interplay between the local currency of the underlying bonds, the ETF's base currency, and the currency of the investor's domicile. 

Currency fluctuations can significantly enhance or erode returns. For example, if the local currency of a bond ETF depreciates against the investor's home currency, the value of returns decreases when converted. Conversely, a favorable exchange rate can boost gains.

Currency exposure introduces additional volatility, particularly in emerging market bonds where local currencies are more susceptible to political and economic instability. Understanding this risk helps investors decide if they should hedge or accept the currency fluctuations for potential higher returns​.

Building a Portfolio with the Best Bond ETFs

Investing in bond ETFs provides an excellent way to diversify your portfolio, balancing risk and return across Singaporean and global markets. By evaluating factors such as credit quality, AUM, expense ratios, and yield, investors can tailor their choices to match their risk appetite and long-term financial goals. Combining local stability with international opportunities helps mitigate market-specific risks while capitalizing on broader economic trends.

Now is the time to take charge of your financial future. Explore your preferred investment platforms—whether through brokerage accounts, robo-advisors, or regular savings plans—and start building a robust portfolio with some of the best bond ETFs available. Diversification and informed decision-making are your keys to sustained financial success.