It’s time to move target maturity bonds into other strategies

Target maturity bonds that are closing in November 2025 have already realized most of the capital gains that came from purchasing the bonds at a discount, says Pablo Martinez, portfolio manager at CIBC Asset Management. So it’s time to move those funds into other strategies.

This could be the later sleeves of the funds, from 2026 to 2030, he said in a June 11 interview. “Those funds are still trading at a discount, and provide a good GIC-equivalent yield.”

Listen to the full conversation on the Advisor To Go podcast, powered by CIBC Asset Management.

Martinez said the sleeves available for the next five years have varying qualities.

“2028 and 2030, that’s where we have the best combination of higher yielding bonds that are trading at a discount,” he said. The 2027 and 2029 sleeves have a less favourable combination of price and yield. The 2026 sleeve, meanwhile, is exceptionally liquid, being seen as a popular alternative to money market instruments.

The funds that are maturing this year could also be moved to fixed-income pools, he added. “Those provide greater diversity in asset classes or in geographical region, and a longer-term approach.”

A third option is the corporate bond market, “which provides a higher yield, great diversifier as well, and also goes longer into the yield curve and provides a bit more yield,” Martinez said.

The key factors Martinez considers when searching for a GIC-equivalent yield for target maturity funds are the overall yield of the portfolio, as well as the discount of the bond.

“When we combine both, that’s how we get the best GIC-equivalent yield for the portfolio.”

A closer look at fixed income

Martinez said ongoing tariff uncertainty has resulted in higher inflation and volatility in global bond yields. Still, yields are within trading range.

“The reason for this is that the break higher in yield was limited by fears of economic slowdown that would result from lower international trade,” he said. “So the bond market is seesawing between those two themes: tariffs-induced inflation and slower growth.”

On a positive note, markets are less reactive to daily headlines, and participants are more focused on the ultimate goal of the U.S. administration, he said.

“[This includes] increasing revenues from tariffs to finance a lower tax base [for] corporations and consumers, and also to try to get the deficit in order,” Martinez said.

Uncontrolled spending by the U.S. government remains a key risk, however, and could result in “loss of confidence in the Treasury market,” he said. This could lead to higher yields.

“That being said, a buyers’ strike for the Treasury market is not our base case scenario,” Martinez said.

While the rebound in the corporate bond market provides opportunities for investors, sectors that could be impacted by tariffs, like the automotive industry, could be riskier.

“But the overall corporate bond markets remain a place where there’s still good opportunities,” he said.

This article is part of the Advisor To Go program, sponsored by CIBC Asset Management. The article was written without input from the sponsor.