9 of the Best Bond ETFs to Buy Now

Fixed-income investments can provide long-term cash flow.

In 2022, we’ve seen the U.S. Federal Reserve embark on the most aggressive monetary policy since the mid-1990s as it looks to fight the red-hot inflation spread across the national economy. And as a result, bonds that once were yielding a pittance a few years ago are now offering much more attractive returns thanks to rising interest rates. There is risk in such a volatile environment for stocks and bonds, but there also could be opportunities for investors looking to rotate back into fixed-income markets after having little alternative but the stock market for the past several years. If you’re interested in bonds right now, here are nine exchange-traded funds that offer a diversified way to increase your exposure to this asset class. Yields are calculated based on their 30-day SEC yield.

iShares Core U.S. Aggregate Bond ETF (ticker: AGG)

The largest exchange-traded bond fund out there and one of the top 10 ETFs in the U.S. by assets, AGG boasts roughly $81 billion under management and is the simplest way to gain exposure to fixed-income markets. It is made up of more than 10,000 individual bond holdings to represent broad exposure to U.S. investment-grade bonds, including about 40% of its portfolio in U.S. Treasury bonds. The rest includes top-tier corporate bonds from firms like JPMorgan Chase & Co. (JPM) as well as mortgage-related debt. And with a net annual expense of just 0.03%, or $3 on every $10,000 invested, AGG is a very affordable one-stop shop for bond exposure.

Current yield: 2.9%

iShares 20+ Year Treasury Bond ETF (TLT)

If you don’t want to diversify into corporate debt and instead want the rock-solid comfort of the U.S. Treasury alone, perhaps the most popular low-risk way to play the bond market is TLT. As the leading economy in the world, America and its government aren’t going anywhere — and besides, Uncle Sam has the power to tax freely if and when deficits or federal debts become a concern. The duration of this bond ETF’s holdings are all 20 years or longer, which does provide some long-term interest rate risk; the fund is actually down 20% in the last 12 months as rates have moved higher and devalued its older positions. However, with a yield that is now roughly 60% higher than what it was just a year ago, it might be time to consider carving out a position once more in this $19 billion low-risk bond fund.

Current yield: 3.0%

Vanguard Total International Bond ETF (BNDX)

Similar to AGG but with an international flavor, BNDX offers you exposure to governments and corporations beyond our borders and excluding the U.S. It holds about 7,000 total bonds mostly in developed markets, with top nations being Japan (17% of the portfolio), France (12%) and Germany (11%) at present. Nearly all bonds are “investment grade,” so you won’t be chasing risky junk bonds here. If you are looking outside the domestic bond market to supplement a U.S.-based fund like AGG or to add diversification, BNDX is worth a look. And at $44 billion in assets and just 0.07% in expenses, it’s also a well-established fund that charges only a modest annual fee.

Current yield: 1.8%

Vanguard Intermediate-Term Corporate Bond ETF (VCIT)

If you’re not particularly impressed by the yield on the prior funds, one of the ways to tap into higher yield is to exclude government-backed debt and instead look solely toward corporate bonds. VCIT takes this approach, but keep in mind that all the debts on its books are from top-ranking companies like Bank of America Corp. (BAC), Boeing Co. (BA) and AT&T Inc. (T). This focus on blue-chip stocks in good standing instead of riskier “junk” bonds gives a measure of peace of mind. This $42 billion fund is another well-established and affordable option, charging just 0.04% in annual expenses.

Current yield: 4.3%

Vanguard Short-Term Corporate Bond ETF (VCSH)

A Goldilocks solution that offers a bit better yield than Treasurys but a bit less risk than longer-dated corporates is VCSH, a $41 billion fund that focuses on high-quality corporate debt but with the typical bond in its portfolio maturing in just 2.8 years. That means investors can have a lot more certainty that those debts will be repaid in full, since it’s a smaller window of time for unexpected disruptions to upend operations at these firms. The yield is a bit less than the longer-dated VCIT but is still very attractive when compared with the typical S&P 500 dividend stock — and offering a lot less risk, which is perhaps a big selling point all by itself in the current environment.

Current yield: 3.6%

iShares TIPS Bond ETF (TIP)

Moving beyond the typical mix of corporate or Treasury bond ETFs, this fund is focused on TIPS — that is, Treasury Inflation-Protected Securities. These securities are issued by the U.S. government and indexed to inflation in order to protect investors from a decline in purchasing power. Simply put: As inflation rises, TIPS adjust their principal value in kind. The iShares TIPS Bond ETF is invested solely in this asset class — and thanks to recent red-hot inflation numbers, the yield has surged. But keep in mind that back just a few years ago, the yield on TIP was less than 1%. That means you may have to watch this holding and think of rotating out if inflationary pressures abate in the years ahead.

Current yield: 15.2%

iShares National Muni Bond ETF (MUB)

Another area that some investors may want dedicated exposure to is municipal bonds — that is, debt offerings from states and local governments instead of the U.S. Treasury. These are often seen as higher risk, and thus deliver a higher yield, but history shows that while muni bond defaults are possible they are incredibly rare — a rate of just 0.08%, to be specific. MUB is a well-established offering with $28 billion in assets, and offers you exposure to more than 2,000 municipal bonds in a single fund for diversification and a bit more yield than you’d get in other longer-dated bond funds. The fact that it charges just 0.07% in expenses is the icing on the cake.

Current yield: 2.8%

iShares iBoxx $ High Yield Corporate Bond ETF (HYG)

We’ve covered all the major flavors of the bond market so far except for one of the most popular — and the most volatile. That would be “junk” bonds, or high-yield offerings from less-than-stellar borrowers. At more than $12 billion in assets, HYG is the largest and most liquid junk bond fund out there. It is diversified across nearly 1,300 holdings, but those holdings all have plenty of specific challenges — from struggling legacy automaker Ford Motor Co. (F) to undercapitalized telecom provider T-Mobile US Inc. (TMUS). If you are either bullish on the recovering U.S. economy or simply don’t mind a bit more risk in exchange for a bit more reward, HYG offers more than double the yield of the typical “investment grade” bond fund. Just remember that the yield may not be generous enough to offset deep declines or the risk of default if the economy enters a recession in late 2022 as some fear.

Current yield: 6.5%

Fidelity Total Bond ETF (FBND)

Of course, one thing that’s worth pointing out is that the current rising interest rate environment plus historic volatility makes it difficult for any vanilla bond fund to reliably deliver. That’s where FBND comes in, with an actively managed and “unconstrained” approach to the bond market that allows it to go wherever it sees the biggest opportunity. This bond ETF debuted back in October 2014, but is built on the long-standing success of its sister mutual fund the Fidelity Total Bond Fund (FEPAX). Though the smallest fund on this list, FBND still commands more than $2 billion in assets. And thanks to a customized mix of bonds it offers one of the higher yields on this list without focusing you too much on one specific or risky category of the marketplace.

Current yield: 3.7%

9 of the best bond ETFs to buy now:

— iShares Core U.S. Aggregate Bond ETF (AGG)

— iShares 20+ Year Treasury Bond ETF (TLT)

— Vanguard Total International Bond ETF (BNDX)

— Vanguard Intermediate-Term Corporate Bond ETF (VCIT)

— Vanguard Short-Term Corporate Bond ETF (VCSH)

— iShares TIPS Bond ETF (TIP)

— iShares National Muni Bond ETF (MUB)

— iShares iBoxx $ High Yield Corporate Bond ETF (HYG)

— Fidelity Total Bond ETF (FBND)

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