Fixed-term bond funds are a useful innovation

The financial markets are particularly frenzied this year. And things could get even more turbulent. Because nothing less than the cornerstone of the financial system, the government bond market, is under scrutiny.

Due to the unbridled debt-making of many countries, there is a growing oversupply of these bonds. Investors are therefore beginning to demand higher yields. They are even questioning whether they can still classify government bonds as risk-free investments. This also has to do with Donald Trump's tariff wars and his even more dangerous idea of ​​introducing a kind of user fee for US government bonds.

When yields rise, new investors benefit from better terms, but all those who already hold bonds are affected by price losses. (When yields rise, prices fall—which is somewhat confusing.)

Those most affected by price losses are currently the owners of government bonds with very long maturities in a whole range of countries, from Japan to France and Great Britain to the USA.

But now there's some good news for private investors. Thanks to an innovation in the ETF market, they have the opportunity to purchase a diversified portfolio of bonds with a fixed expiration date using a single product. Because of the limited maturity, they can safely ignore the impact of inflation, yields, key interest rates, and changing borrowers' creditworthiness on prices.

Because when they buy an ETF that repays in March 2028, for example, investors know from the outset how much return they will earn over the entire term. Apart from the extreme case of debtors becoming insolvent, no negative surprises are possible.

With a regular ETF or investment fund, however, where bonds constantly expire and have to be replaced with new ones, investors don't have this certainty. Price losses can ruin their plans.

It's just like in the good old days, when "Eidgenossen" (Swiss federal bonds) or bonds issued by top-rated Swiss issuers still offered significant returns – and investors could put such securities in their portfolios and only have to worry about them again when they were repaid. With maturity ETFs, the process is exactly the same, and broad diversification is included.

To track down these ETFs, however, you need to be familiar with the terminology used by the various providers. Unfortunately, there's a Babylonian jumble of terms: At Amundi, these products are called "Fixed Maturity," at Invesco "Bullet Shares," at iShares "iBonds," and at Xtrackers "Target Maturity." The fees are around 0.1 percent, which is quite reasonable.

The major drawback from the perspective of Swiss investors is that the ETF currencies are usually the dollar or euro. This means there is currency risk, and a sharp appreciation of the franc could potentially erode returns. In this case, the tax consequences would still apply: interest payments are subject to income tax.

Under these circumstances, it may make sense to take a little additional risk and invest in maturity ETFs with high-quality corporate bonds instead of government bonds.

A concrete example: The iShares iBonds Dec 2034 Term € Corp UCITS ETF—such terrible neologisms are normal—is a product that includes 111 corporate bonds and matures in December 2034. It was launched back in November, but the very nature of ETFs is that you can buy and sell at any time. Updated yield figures can be found on the provider's website if you want to get in today.

The abbreviation YTM stands for yield to maturity. According to iShares, the return for this portfolio as of June 5, 2025, until the end date in 2034 is 3.6 percent per year. All other information, such as fees (0.12 percent), the Swiss stock ticker (IG34), and the portfolio's composition by sector, country, or credit rating, can also be found on the website.

Of course, higher yields are currently available in the dollar zone, even with shorter maturities. Another example of this is the Invesco Bullet Shares 2030 USD Corporate Bond UCITS ETF. The provider lists the yield to maturity at 4.77 percent. The cost is 0.1 percent, and the Swiss stock exchange ticker is BS30.

It's fair to say that the websites of the various providers aren't particularly user-friendly. Anyone looking for centralized information about new ETF listings on the Swiss stock exchange can find this information on the SIX website. You can find the relevant page by searching for the terms "SIX, ETF Explorer, and new listings."

An article from the « NZZ am Sonntag »