Investing in a publicly traded company can be approached in two main ways. The first and most obvious method is by purchasing shares, effectively making you a part owner.
This ownership entitles you to voting rights and potentially dividends, depending on the company’s distribution policies. Your investment grows as the company’s earnings increase and as speculation from other investors drives up the value of your shares.
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This route offers high potential rewards but comes with substantial risks — if the company excels, the share price could soar; but if it fails, you bear the losses and stand last in line for any financial restitution during liquidation.
Alternatively, instead of becoming an owner, you can choose to be a creditor by purchasing corporate bonds. This method involves lending money to the company in exchange for semi-annual interest payments at a fixed coupon rate, with the principal amount returned at maturity.
If the company goes under, bondholders are prioritized over shareholders for payouts from the company’s liquidated assets. However, unlike stocks, the return on bonds is capped at the agreed-upon yield, meaning you won’t benefit from the company’s exceeding market expectations but rather from steady, predictable returns.
In addition, the performance of bond investments is predominantly influenced by prevailing credit environments and interest rates rather than market risk.
As interest rates rise, new bonds offer higher yields, making older bonds with lower yields less attractive, thus lowering their prices. Conversely, when interest rates fall, existing bonds with higher yields become more valuable, driving up their prices.
This dynamic highlights why bond investors need to closely monitor interest rate movements and inflation, as they can significantly impact bond values and create volatility.
“As we enter the first easing cycle in several years and yields decline at the short end of the yield curve, investors will likely seek alternative sources of yield,” says Joy Yang, head of index product management and marketing at MarketVector Indexes. “Corporate bonds, offering a premium over government bonds and diversification relative to riskier equities, may attract increased interest.”
Now, corporate bond investing can be made more accessible and liquid through exchange-traded funds (ETFs). ETFs allow investors to buy into a diversified portfolio of bonds, providing easier management and reducing the risk associated with individual bonds.
Additionally, corporate bond ETFs often distribute income on a monthly basis, making them an appealing option for investors seeking consistent, above-average income.
Here are seven of the best corporate bond ETFs to buy today:
| ETF | Yield to maturity | Expense ratio |
| Vanguard Total Corporate Bond ETF (ticker: VTC) | 5.0% | 0.04% |
| iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD) | 4.8% | 0.14% |
| SPDR Portfolio Corporate Bond ETF (SPBO) | 4.8% | 0.03% |
| iShares Aaa – A Rated Corporate Bond ETF (QLTA) | 4.5% | 0.15% |
| PIMCO Investment Grade Corporate Bond Index ETF (CORP) | 4.8% | 0.20% |
| Invesco BulletShares 2026 Corporate Bond ETF (BSCQ) | 4.2% | 0.10% |
| Invesco BulletShares 2025 Corporate Bond ETF (BSCP) | 4.6% | 0.10% |
Vanguard Total Corporate Bond ETF (VTC)
Looking for a low-cost, highly diversified corporate bond ETF? As usual, Vanguard has a good offering in this fixed-income segment via VTC. This ETF uses an “ETF of ETFs” structure to encompass three short-, intermediate- and long-term corporate bond ETFs. Its 0.04% expense ratio is very competitive and inclusive of all underlying ETF fees, placing it in the cheapest quintile of bond ETFs.
VTC’s benchmark is the Bloomberg U.S. Corporate Bond Index, which focuses solely on investment-grade corporate bonds, with a majority rated “BBB” and “A.” Right now, the 7,700-plus issues held by VTC are paying an average yield to maturity of 5%, which is the ETF’s expected total return over its maturity. Against this is an average duration of seven years, implying moderate interest rate sensitivity.
iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD)
Looking to trade corporate bonds instead of buying and holding them? The ETF to use for this role is LQD, which tracks the Markit iBoxx USD Liquid Investment Grade Index. A big focus of this ETF is liquidity — the underlying bonds are screened for high trading volume and popularity, which helps LQD achieve a very low 0.01% 30-day median bid-ask spread and an average daily volume of more than 25 million shares.
Investors who buy LQD also have access to options. For example, one can hold 100 shares of LQD and sell covered calls to generate income. Similarly, investors who are bearish on bonds can buy puts on LQD to hedge against a decline. The popularity of this ETF at over $30 billion in assets under management (AUM) makes it a highly versatile pick for traders. LQD charges a 0.14% expense ratio and offers a 4.8% yield to maturity.
SPDR Portfolio Corporate Bond ETF (SPBO)
When it comes to selecting corporate bond ETFs, Joy has some tips for investors. “Understand the methodology of the underlying index, especially the pricing sources, and assess the tracking error,” she says. “The fund manager’s portfolio construction process can significantly impact performance.” In this ETF segment, it’s worth looking closely at an ETF’s underlying approach to bond investing.
An affordable and easy-to-understand example is SPBO. For a 0.03% expense ratio, this ETF tracks the Bloomberg U.S. Corporate Bond Index, a benchmark of thousands of publicly issued, investment grade, fixed-rate, taxable, U.S. dollar-denominated corporate bonds primarily issued by industrial, utility and financial companies. SPBO pays a 4.8% yield to maturity and has a 7.2-year duration.
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iShares Aaa – A Rated Corporate Bond ETF (QLTA)
“Consider the liquidity of both the ETF shares and the underlying securities, and how they trade in both primary and secondary markets,” Joy notes. “The fund manager’s capital markets relationships can also make a significant difference.” In general, corporate bond ETF investors should try to stick with large, reputable firms with strong fixed-income desks that primarily target highly traded bonds.
Liquidity is generally better with higher credit quality issuers, with QLTA putting this mechanic in play. This ETF tracks the Bloomberg U.S. Corporate Aaa – A Capped Index, which as its name suggests only holds corporate bonds rated “A” and higher. This makes it even less likely to default compared to the previous picks. QLTA pays a 4.5% yield to maturity, has a 7.1-year duration and charges 0.15%.
PIMCO Investment Grade Corporate Bond Index ETF (CORP)
“When considering a corporate bond ETF, evaluate both the product fees and bid-ask spreads, as well as the costs of buying the underlying securities,” Joy explains. “Bonds are often hard to source, making the fund manager’s expertise crucial.” For expertise in bond trading, few firms can rival PIMCO, one of the world’s leading fixed-income firms. For corporate bond exposure, PIMCO offers CORP.
This ETF tracks the BofA Merrill Lynch US Corporate Index, but PIMCO applies its own optimization process that uses liquidity/transaction cost screens to exclude illiquid or credit-impaired issues, while still maintaining similar characteristics to CORP’s benchmark. Right now, investors can expect a 4.8% yield to maturity against a 6.5-year duration. CORP charges a 0.2% expense ratio.
Invesco BulletShares 2026 Corporate Bond ETF (BSCQ)
“BulletShares bond ETFs are designed to provide investors with an experience that is similar to owning an individual bond, combined with all of the benefits of the ETF vehicle,” says Brian McMullen, senior fixed income strategist at Invesco. “Each portfolio invests in a diversified basket of bonds that all have an effective maturity date in the same year, with the intention of holding those bonds until their maturity.”
For example, an investor looking to access their principal in the year 2026, while receiving monthly interest distributions in the interim, can buy BSCQ. Like a traditional bond, shares of BSCQ will “mature” and liquidate on or around Dec. 15, 2026. When this happens, investors will be paid the net asset value (NAV) of the ETF. All this comes at a very reasonable 0.1% expense ratio, with the current yield to maturity of the ETF clocking in at 4.2%.
Invesco BulletShares 2025 Corporate Bond ETF (BSCP)
“This hold-to-maturity approach of Invesco BulletShares ETFs allows investors to access greater visibility on future return streams versus traditional bond ETFs, and target the appropriate yield and duration to best meet their desired investment outcomes,” McMullen explains. In effect, you can use these unique corporate bond ETFs to build “bond ladders” without the hassle of buying individual bonds.
For instance, an investor with $20,000 they want to keep relatively safe while earning a competitive yield can separate it into two rungs. The first rung could be invested in BSCP, which terminates on or around Dec. 15, 2025, while the second rung could be invested in BSCQ. Each month, this investor will receive monthly distributions from both ETFs, and at maturity, their principal will be returned (barring any defaults).
BSCP currently offers a 4.6% yield to maturity at a modest 0.1% expense ratio.
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7 Best ETFs to Invest in Corporate Bonds originally appeared on usnews.com
Update 10/01/24: This story was previously published at an earlier date and has been updated with new information.
