In partnership with:

If you've ever looked into investing beyond shares, bonds have probably come up.

They're one of the most common assets held inside fixed income ETFs… and for good reason. Bonds are issued by governments and companies to raise money, and in return, they pay you regular interest.

But here’s the thing: not all bond ETFs are created equal. 

Some bonds barely move when interest rates shift. Others can swing enough to make you double-check you didn’t accidentally buy shares.

The difference? Time.

So… what does “short-term” and “long-term” actually mean?

At a high level, it’s pretty simple:

• Short-term bond ETFs invest in bonds that mature sooner (think 1-3 years)
• Long-term bond ETFs invest in bonds that mature much later (10+ years)

But this isn’t just about how long you hold onto your investment. It’s about how your investment behaves.

The trigger: interest rates

You see, bond prices and interest rates are in a bit of a situationship. 

When interest rates go up, bond prices tend to go down. And when interest rates go down, bond prices tend to go up. 

Just like the classic push and pull attraction people love to romanticise in romcoms. 

We break down this relationship in more detail here.

Bond duration as a multiplier

Now multiply this see-saw effect with the duration of a bond. 

Generally speaking, the longer the bond term, the bigger the reaction. 

This means: 

• Short-term bond ETFs = smaller, steadier movements 
• Long-term bond ETFs = bigger swings (in both directions)

Why does this happen? 

Long-term bonds react more because you’re locked in for longer. That means when the interest rate shifts, your bond can suddenly look like a steal… or a very bad deal.

So which bond duration is right for you?

Depending on your goals, you might want to pick either short-term bond ETFs or long-term bond ETFs. 

Short-term bond ETFs might suit you if you: 

• Want a less volatile investment than shares
• Are parking cash for the near future 
• Don’t want to worry too much about rate movements.

Whereas long-term bond ETFs might be better if you: 

• Think interest rates could fall (which can boost bond prices) 
• Want higher income potential (although it also means greater sensitivity to rate movements and potential for capital loss)
• Are okay with accepting short-term volatility. 

After a stretch of rising interest rates, long-term bond ETFs have had a bumpier ride. But that also means they’re more sensitive to what happens next. 

While the common “bonds are safe” gets thrown around a lot, it’s still important to understand the difference in bond duration and how they impact your portfolio. 

Because bonds can help reduce overall portfolio risk, but that doesn’t mean they don’t move.

‍

Enter: Franklin Templeton

Looking for a simple way to get exposure to bonds? Franklin Templeton offers a range of fixed income strategies that let you invest in a diversified basket of bonds, all in one tradable ETF. 

So whether your goals are income, diversification or total returns, Franklin Templeton’s range of fixed income strategies can play a role as part of a diversified investment portfolio.

‍

Find out more about Franklin Templeton’s fixed income capabilities

Interest rates will always move - it’s part of how economies function.

‍

Disclaimer:

All information contained in the Flux app, www.flux.finance, www.joinflux.com, app.flux.finance and any podcast of Flux Media Pty Ltd (ABN 27 639 804 345) is for education and entertainment purposes only. It is not intended as a substitute for professional financial, legal or tax advice. While we do our best to provide accurate information on the podcast, we accept no responsibility for any inaccuracies that may be communicated. 

Flux does not operate under an Australian financial services licence and relies on the exemption available under section 911A(2)(eb) of the Corporations Act 2001 (Cth) and ASIC RG 36.66. Flux Technologies Pty Ltd provides general advice on credit products under our own Australian Credit Licence No. 530103. The product information presented does not constitute an offer and we are not recommending or suggesting any particular product. 

‍

This is issued for information purposes only and does not constitute investment or financial product advice. It expresses no views as to the suitability of the services or other matters described in this document as to the individual circumstances, objectives, financial situation, or needs of any recipient. You should assess whether the information is appropriate for you and consider obtaining independent taxation, legal, financial or other professional advice before making an investment decision. Neither Franklin Templeton Australia, nor any other company within the Franklin Templeton group guarantees the performance of any Fund, nor do they provide any guarantee in respect of the repayment of your capital.

Please read the relevant Product Disclosure Statement (PDSs) and any associated reference documents before making an investment decision. In accordance with the Design and Distribution Obligations requirements we maintain Target Market Determinations (TMD) for each of our Funds. All documents can be found via www.franklintempleton.com.au or by calling 1800 673 776.

Issued by Franklin Templeton Australia Limited (ABN 76 004 835 849, AFSL 240827).

‍