9 of the Best Bond ETFs to Buy Now

Just like how stock investors can slice and dice their portfolios, bond investors can too. Examples of the former may include investors who prefer value stocks, dividend stocks, small-cap stocks, growth stocks, international stocks or a particular sector like technology.

Similarly, a bond investor favoring safety may opt for U.S. government Treasurys, while another hunting for yield may buy junk bonds. Those worried about rising interest rates may opt to buy a floating-rate bond, while those looking for global exposure may buy emerging-market debt.

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With more than 650 U.S.-listed bond exchange-traded funds (ETFs), there’s no shortage of options when it comes to putting a bond investment thesis into play.

The benefits of using a bond ETF include transparency into portfolio metrics (these are usually updated daily on the provider’s website), liquidity similar to trading a stock, and monthly distributions versus the usual semi-annual coupon.

“Bond ETFs invest primarily in fixed-income securities such as government bonds, corporate bonds, municipal bonds and other debt instruments,” says Wes Moss, managing partner and chief investment strategist at Capital Investment Advisors. “These funds are popular among retail investors because they offer diversification, professional management and the potential for income generation.”

Here are nine of the best bond ETFs to buy today:

Bond ETF Expense Ratio Yield to maturity
Vanguard Total Bond Market ETF (ticker: BND) 0.03% 5.3%
BlackRock Ultra Short-Term Bond ETF (ICSH) 0.08% 5.5%
SPDR Portfolio Intermediate Term Corporate Bond ETF (SPIB) 0.04% 5.3%
iShares 20+ Year Treasury Bond ETF (TLT) 0.15% 4.6%
Vanguard Mortgage-Backed Securities ETF (VMBS) 0.04% 5.6%
SPDR Bloomberg 3-12 Month T-Bill ETF (BILS) 0.135% 5.3%
iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD) 0.14% 5.4%
The US Treasury 10 Year Note ETF (UTEN) 0.15% 4.3%*
F/m 10-Year Investment Grade Corporate Bond ETF (ZTEN) 0.15% 5.5%*

*30-day yields.

Vanguard Total Bond Market ETF (BND)

“Investors have seen bond ETFs successfully weather multiple storms in the markets, including the pandemic-related sell-off in March 2020,” says John Croke, head of active fixed income product at Vanguard. “Time and again, bond ETFs have demonstrated their resilience and liquidity for investors.”

BND is one of the most popular bond ETFs on the market with $104 billion in assets under management (AUM) for its share class. For a 0.03% expense ratio, investors get exposure to more than 11,000 government, agency, mortgage-backed and investment-grade corporate bonds of various maturities.

BlackRock Ultra Short-Term Bond ETF (ICSH)

“Short-term bond ETFs have compelling yields, which will do well while short-term rates remain high,” says Dave Francis, investment advisor and principal at Bartlett Wealth Management. “They also have the benefit of providing higher rates, even if the Federal Reserve begins reducing the overnight rates.”

With a duration of 0.4 years, ICSH is virtually immunized from interest rate risk. Because short-term rates are elevated right now, investors can expect a high 5.5% yield to maturity thanks to its actively managed portfolio of investment-grade and floating-rate bonds. ICSH charges a 0.08% expense ratio.

SPDR Portfolio Intermediate Term Corporate Bond ETF (SPIB)

“Intermediate-term bond ETFs typically invest in bonds with maturities between three and 10 years,” Moss says. “They offer a balance between risk and return and are suitable for investors who have a medium-term investment horizon.” A low-cost pick to watch in this category is SPIB.

SPIB eschews government-issued Treasurys to focus solely on investment-grade corporate bonds ranging from one to 10 years in maturity. This allows it to pay a higher 5.3% yield to maturity, while retaining a lower duration of around 4.1 years. It charges a reasonably low 0.04% expense ratio.

iShares 20+ Year Treasury Bond ETF (TLT)

“Long-term bond ETFs invest in bonds with maturities of more than 10 years, are more sensitive to interest rate changes and may experience greater volatility in their returns,” Moss says. “They are suitable for investors who have a long-term investment horizon and can tolerate higher levels of risk.”

A highly popular long-term bond ETF is TLT, which tracks the 20-plus-year end of the yield curve. With a 16.6-year duration, this ETF has very high interest rate sensitivity, making it best suited for high-risk investors betting on falling rates in the near future. TLT charges a 0.15% expense ratio.

Vanguard Mortgage-Backed Securities ETF (VMBS)

“MBS ETFs offer yields that are comparable to investment-grade corporate bonds, accompanied with high credit quality and monthly cash flows,” Francis says. A popular example is VMBS, which holds securities issued by Ginnie Mae, Fannie Mae and Freddie Mac.

Currently, VMBS holds more than 1,400 bonds averaging a duration of 5.6 years and a yield to maturity of 5.6%. The credit rating of this ETF is high, as all of its holdings are implicitly backed by the U.S. government via the aforementioned agencies. The ETF charges a 0.04% expense ratio.

[SEE: 7 Best Vanguard Funds to Buy and Hold]

SPDR Bloomberg 3-12 Month T-Bill ETF (BILS)

“Often overlooked in bond ETFs is liquidity — the ability to buy or sell the security quickly, easily and without a large spread,” says Daniel Dusina, chief investment officer at Blue Chip Partners. “A bond ETF’s liquidity, for the most part, is driven by the liquidity of its underlying securities.”

One of the most liquid bond ETFs is BILS, which currently has a 0.01% 30-day median bid-ask spread. This is made possible due to the nature of its underlying holdings, which are all Treasury bills (T-bills). Investors can currently expect a 5.3% yield to maturity and a 0.135% expense ratio.

iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD)

“The bid-ask spread can still be narrow for an ETF with low trading volume if it invests in liquid markets, such as investment-grade corporate debt or U.S. Treasury bonds,” Dusina says. “This is important to be aware of when choosing bond ETFs, as a large spread can equate to a worse initial purchase price.”

Despite holding corporate bonds, LQD makes liquidity a priority by tracking the Markit iBoxx USD Liquid Investment Grade Index. This results in a low 0.01% 30-day median bid-ask spread. Currently, investors can expect a 5.4% yield to maturity, an 8.3-year duration, and a 0.14% expense ratio.

The US Treasury 10 Year Note ETF (UTEN)

What if you wanted to track a particular portion of the bond market, such as the 10-year U.S. Treasury yield? The ETF to watch here is UTEN, which is part of a unique lineup of single-bond ETFs. This ETF tracks the ICE BofA Current 10-Year US Treasury Index by only holding the latest 10-year note.

With UTEN, investors can gain targeted exposure to the 10-year Treasury, but without the need for manually rolling issues on TreasuryDirect.gov. You also get monthly distributions and liquidity like a stock with a low 0.02% 30-day median bid-ask spread. UTEN charges a 0.15% expense ratio and offers a 4.3% 30-day SEC yield.

F/m 10-Year Investment Grade Corporate Bond ETF (ZTEN)

The previous corporate bond ETFs hold an eclectic mix of different issues to target a general maturity band. But if you wanted exposure to only the latest issuers of a certain maturity, they won’t suffice. The solution here is a target maturity bond ETF like ZTEN, which only holds the most recently issued 10-year bonds.

Unlike its Treasury-only counterpart UTEN, ZTEN focuses on investment-grade corporate bonds. It rebalances monthly to maintain its target maturity and capture any new bond issues. With a total of more than 240 holdings, it is quite diversified and relatively affordable at a 0.15% expense ratio. ZTEN currently pays a 5.5% 30-day yield.

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9 of the Best Bond ETFs to Buy Now originally appeared on usnews.com

Update 06/05/24: This story was previously published at an earlier date and has been updated with new information.

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