Bond ETFs split into two camps. Floating-rate and short-term funds such as QPON, FLOT and IYLD pay income that moves with interest rates and barely move in price: QPON returned +20.6% over five years. Longer-term funds such as VAF and the inflation-linked ILB are more sensitive to rates: ILB returned just +1.6% over five years, because rising real interest rates pushed bond prices down. Many retirees use both, for different jobs.
Why retirees are buying bonds again
For years, bonds paid almost nothing. Now that interest rates are higher, bond ETFs offer real income again, and investors have noticed. In September, ILB took $185.1 million, IYLD $153.1 million, QPON $146.6 million and SUBD $124.8 million, more than $600 million between them.
For a retiree, bonds usually sit in the defensive bucket: the money you can draw on when share markets fall, so you never have to sell shares at a bad time. The right bond fund depends on which job you need it to do.
The one idea you need: interest rate risk
When interest rates rise, existing bonds paying lower rates become less attractive, so their prices fall. The longer a bond has until it matures, the bigger the fall. This sensitivity is called duration. A rough rule: a fund with a duration of six years would fall about 6% if rates rose by one percentage point, and rise by about the same if rates fell.
- Floating-rate bonds reset their interest payments every few months, so their duration is close to zero. Prices hardly move; income rises and falls with rates.
- Fixed-rate, longer bonds lock in a rate. Their prices swing more, which hurts when rates rise but helps when rates fall, often during a share market crash.
You can see this clearly in government bond ETFs that hold the same type of bond at different maturities.
The longer the bond, the bigger the swing
ILB: inflation-linked bonds, and why the 5-year return is weak
ILB holds Australian government inflation-linked bonds. Their face value is adjusted for inflation, so the income and the final repayment rise with prices. Held to maturity, that gives strong protection against inflation, which is why the fund appeals to retirees worried about the cost of living.
But a fund is not the same as holding one bond to maturity. ILB's price depends on real interest rates, the return after inflation. Real rates jumped from below zero to clearly positive in 2022 and 2023, and inflation-linked bonds tend to be long-dated, so ILB fell hard. The result to 30 September 2026:
| ETF | Type | 1 year | 3 years | 5 years |
|---|---|---|---|---|
| ILB | Australian inflation-linked govt | −0.4% | +8.6% | +1.6% |
| UTIP | US inflation-protected, hedged | −1.9% | +8.6% | n/a |
| VGB | Australian govt, fixed rate | −0.7% | +9.8% | −2.7% |
| AAA | Cash | +4.1% | +12.7% | +17.0% |
Cumulative total returns to 30 September 2026. Source: TMX Australia monthly funds report.
ILB still beat ordinary government bonds over five years, which shows the inflation link did its job. It just could not overcome rising rates. Cash beat both. ILB suits investors who want protection against a future burst of inflation, accept that prices can fall, and hold for the long term. Compare ILB vs VGB →
The income funds: IYLD, QPON, FLOT and friends
These funds hold short-dated or floating-rate bonds, mostly issued by banks and large companies. Their income tracks interest rates closely and their prices stay steady.
| ETF | What it holds | Fee | Size | 1 year | 5 years |
|---|---|---|---|---|---|
| IYLD (iShares) | Short-dated, high-quality bonds | 0.12% | $266m | +3.1% | +16.3% |
| QPON (Betashares) | Bank senior floating-rate bonds | 0.22% | $2,379m | +4.6% | +20.6% |
| FLOT (VanEck) | Floating-rate bonds | 0.22% | $1,331m | +4.3% | +19.0% |
| SUBD (VanEck) | Bank subordinated debt | 0.29% | $3,989m | +5.1% | +23.0% |
| HBRD (Betashares) | Active credit income | 0.55% | $2,493m | +4.4% | +21.6% |
| CRED (Betashares) | Fixed-rate corporate bonds | 0.25% | $1,884m | −1.2% | +2.4% |
| PLUS (VanEck) | Fixed-rate corporate bonds | 0.32% | $403m | −0.1% | +5.2% |
Cumulative total returns to 30 September 2026. Source: TMX Australia monthly funds report.
The pattern is clear. Floating-rate funds such as QPON and FLOT returned about 3.5 to 3.8% a year over five years. Fixed-rate corporate funds such as CRED and PLUS hold similar companies but longer bonds, and rising rates wiped out most of their five-year gain. CRED did bounce back with +18.0% over three years, which shows how quickly the picture can change when rates stop rising.
What $10,000 grew to
A word on SUBD and HBRD. Their higher returns come from taking more credit risk. Subordinated debt ranks below senior bonds if a bank gets into trouble, so investors are paid extra for that risk. In a severe banking crisis these funds would fall further than QPON or cash. Compare QPON vs FLOT →
Where traditional bond funds fit
Broad funds such as VAF, IAF and BOND hold mostly government and semi-government bonds of all maturities. VAF lost 0.7% over five years, which is why many retirees now doubt them. Their real job is different: when shares crash and interest rates are cut, longer bonds usually rise, cushioning the portfolio. Floating-rate funds do not do that, because their prices barely move either way.
Floating rate beat traditional bonds as rates rose
How retirees build a defensive bucket
- Cash for the next one to two years of spending. Funds like AAA or BILL returned about 4% over the past year with almost no price movement. See our cash ETF comparison.
- Floating-rate or short-term bonds for the next few years. QPON, FLOT or IYLD can pay a little more than cash with low price risk.
- Some longer or inflation-linked bonds for protection. VAF or ILB can help if shares fall sharply or inflation returns, but expect bumps along the way.
- Credit income with care. SUBD and HBRD have paid more, but they are tied to bank health and are not a cash substitute.
Costs matter more in bonds because returns are lower. On $100,000 over 20 years, assuming a 7% return before fees, the fee drag is about $8,588 on IYLD, $15,606 on QPON or FLOT and $37,898 on HBRD.
Fees on $100,000 over 20 years
For the full list, see our fixed income ETFs page and every bond ETF on the ASX. For the bigger picture, read how to inflation-proof your portfolio and the best ETFs for retirees. Compare these funds side by side →
Common questions
Is ILB a good investment for retirees?
ILB protects against inflation over the long term, but its price is sensitive to real interest rates. It returned +1.6% over the five years to 30 September 2026. It suits investors who want inflation protection and can sit through price swings, rather than those seeking steady income.
What is the difference between QPON and FLOT?
Both hold floating-rate bonds and charge 0.22%. QPON focuses on senior bonds issued by Australian banks; FLOT holds a broader mix of floating-rate issuers. Their returns have been similar: +20.6% and +19.0% over five years.
Why did my bond ETF go down?
Most likely interest rates rose. When rates rise, existing fixed-rate bonds fall in price, and longer bonds fall the most. VAF lost 0.4% and ALTB 5.9% over the year to 30 September 2026, while floating-rate funds gained.
Are bond ETFs safer than cash?
No. Cash ETFs like AAA have almost no price risk. Bond ETFs can fall in value, and credit funds such as SUBD carry the risk that issuers get into trouble. Bonds can pay more over time in exchange for those risks.
Joshua Stega is a financial adviser with 20 years' experience and the founder of ETF Adviser. He built ReviewETF to make every Australian ETF easy to find and compare.
General information only. It does not take into account your objectives, financial situation or needs. Consider the PDS and TMD before investing. Past performance is not a reliable indicator of future performance. Data as at 30 September 2026.