How to invest in bond ETFs — guide to debt funds

Why bond ETFs?

Bond ETFs are funds that invest in a basket of bonds — government, corporate or mixed. They provide exposure to the debt market without needing to buy individual bonds.

Advantages vs. individual bonds

Types of bond ETFs

Government bond ETFs

Invest in debt issued by governments. Lowest credit risk.

On GPW:

• Beta ETF TBSP — Polish Treasury bonds, TBSP benchmark, TER ~0.15%
• Beta ETF 6M bonds — short-term Polish bonds, low volatility

International (available through Polish brokers):

• iShares Core EUR Govt Bond (IEGA) — Eurozone government bonds
• iShares USD Treasury Bond 7-10yr (IBTM) — US treasuries
• iShares Global Govt Bond (IGLO) — global government bonds

Corporate bond ETFs

Invest in company debt. Higher risk, higher potential return.

• iShares EUR Corporate Bond (IEAC) — European investment grade corporate bonds
• iShares EUR High Yield (IHYG) — European high yield (higher risk)
• iShares USD Corporate Bond (LQDE) — US corporate IG

Inflation-indexed bond ETFs

Protect against inflation — coupon rises with price increases.

• iShares EUR Inflation Linked Govt Bond (IBCI) — European linkers
• iShares TIPS (ITPS) — US TIPS

Key concepts

Duration

Measures bond price sensitivity to interest rate changes:

• Short duration (0-3 years) — low sensitivity, low profit
• Medium (3-7 years) — balanced
• Long (7+ years) — high sensitivity, potentially higher profit

Rule: Rates rise → bond prices fall. The longer the duration, the bigger the decline.

Yield to Maturity (YTM)

Expected annual return if you hold the bond to maturity. For ETFs, it's the weighted average YTM of all bonds in the fund.

Credit rating

• AAA-BBB (investment grade) — safe, lower profit
• BB and below (high yield / junk) — risky, higher profit

When to invest in bond ETFs?

Falling interest rates

When Polish central bank (NBP) cuts rates, bond prices rise. Bond ETFs with longer duration gain the most.

High uncertainty in stock market

Government bonds are "safe haven" — when stocks fall, investors flee to bonds.

Building a balanced portfolio

Classic 60/40 allocation (stocks/bonds) requires a bond component.

Close to financial goal

If you need money in 2-3 years (e.g. for down payment), short-term bonds protect capital.

When to avoid?

• Rising interest rates — bond prices fall
• High inflation without indexation — real coupon value decreases
• Very long horizon (20+ years) — stocks historically provide more

Sample bond allocations

Conservative investor (60% bonds)

• 30% Beta ETF TBSP (Polish treasury)
• 15% IEGA (European government)
• 15% IEAC (corporate IG)

Balanced (30% bonds)

• 15% Beta ETF TBSP
• 10% IEGA
• 5% IBCI (inflation-linked)

Short-term parking (100% short bonds)

• 50% Beta ETF 6M bonds
• 50% short-term Treasury bonds (3M/1Y)

Taxes on bond ETFs

• 19% capital gains tax on profit when selling
• Distributing ETFs — 19% on each coupon payment
• Accumulating ETFs — tax only when selling (more tax-efficient)
• IKE/IKZE — no tax (when conditions met)

How Freenance can help

Freenance supports the bond portion of your portfolio:

• Value tracking — bond ETFs alongside stocks and cash
• Allocation — you see stocks/bonds/cash proportions
• Rebalancing — signal when proportions drift apart
• Full picture — retail bonds + ETFs + rest of portfolio in one place

👉 Manage your bond portfolio with Freenance — freenance.io