CDN Bond Index Fund vs GIC/HISA?

[globe3]

I'm trying to get a read on how CDN Bond Index Funds work (i.e. TD e-series CDN Bond Index). Appears as though it's had relatively stable, positive earnings performance over the past several years:

2010: 6.4%
2009: 4.6%
2008: 5.7%
2007: 3.2%
2006: 3.7%
2005: 5.7%

So you're looking at about a 5% return annually, on average over the past 6 years. Compare this with the high volatility of investing in stocks, and the low returns of dumping money into a HISA at 1.5-2%, doesn't it make sense to invest in this Bond Index given the relative low risk and higher return than a HISA?

What's the main disadvantage of investing in the Bond Index Fund? Is there risk of volatility (i.e. is there a risk premium to pay to get slightly average annual higher returns?) What are the determining factors of how well this fund does? Is there any chance of negative performance?

[Belguy]

With bonds, you can't look at a period of declining interest rates and project that into a future period of rising interest rates. In other words, you can't expect the same results from a bond fund in the next six years that the fund experienced over the past six years. Circumstances change and past performance of any investment is no guarantee of future results. You should be aware of that when choosing any investment.

[andrewf]

You need to look at the yield to maturity.

Returns for the last 5 years (indeed, last 15) have been juiced by capital appreciation due to falling rates. That force is going to stop and possibly start moving against bonds, acting as a drag on returns. This is why everyone is saying that you should stick with low duration bonds, as these are less sensitive to changes in interest rates.

[gibor]

You need to look at the yield to maturity.

Returns for the last 5 years (indeed, last 15) have been juiced by capital appreciation due to falling rates. That force is going to stop and possibly start moving against bonds, acting as a drag on returns. This is why everyone is saying that you should stick with low duration bonds, as these are less sensitive to changes in interest rates.

So probably CBO or TD Short Term I is a better choice .....