If you’re contemplating adding a fixed income component to your investment portfolio, opting for bond exchange-traded funds (ETFs) over individual bonds has substantial advantages.
One major benefit is enhanced liquidity. Individual bonds that are often traded over the counter present challenges for retail investors due to the less frequent trading, making it difficult to buy or sell bonds quickly at fair market prices.
Additionally, the over-the-counter nature of individual bonds means pricing can be inconsistent and hard to navigate for those not trading in large volumes. In contrast, bond ETFs trade like stocks on major exchanges, offering transparent, real-time pricing during market hours.
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This trading mechanism ensures that ETF market prices closely align with their net asset value, thanks to the ongoing process of in-kind creation and redemption by large institutional investors.
Moreover, bond ETFs boast superior transparency compared to individual bonds. Pricing and valuation of individual bonds can often be opaque, with less readily available pricing information and more complex valuation processes that typically require professional financial analysis.
Bond ETFs simplify this by providing crucial metrics such as yield to maturity, duration and credit quality directly on their websites, updated daily and explained in detail to aid investor understanding.
Here are nine of the best bond ETFs to buy today:
| ETF | Expense ratio | Yield to maturity |
| Vanguard Total World Bond ETF (ticker: BNDW) | 0.05% | 4.7% |
| iShares 1-3 Year Treasury Bond ETF (SHY) | 0.15% | 4.0% |
| iShares 7-10 Year Treasury Bond ETF (IEF) | 0.15% | 4.0% |
| iShares 20+ Year Treasury Bond ETF (TLT) | 0.15% | 4.4% |
| SPDR Portfolio Mortgage-Backed Bond ETF (SPMB) | 0.05% | 4.8% |
| SPDR Bloomberg 1-3 Month T-Bill ETF (BIL) | 0.14% | 4.7% |
| Amplify Samsung SOFR ETF (SOFR) | 0.20% | 4.7%* |
| Invesco Total Return Bond ETF (GTO) | 0.25% | 5.6% |
| Invesco Equal Weight 0-30 Year Treasury ETF (GOVI) | 0.15% | 4.0% |
*Denotes seven-day SEC yield as of Sept. 30.
Vanguard Total World Bond ETF (BNDW)
“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.”
Vanguard’s most diversified bond ETF is BNDW. This ETF uses a “fund of funds” structure to track over 18,000 domestic and international bonds represented by the Bloomberg Global Aggregate Float Adjusted Composite Index. As with most Vanguard funds, BNDW is very affordable, at a 0.05% expense ratio.
iShares 1-3 Year Treasury Bond ETF (SHY)
“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.”
Even with the recent rate cuts, SHY is still paying a decent average yield to maturity of 4%. This ETF tracks the short end of the Treasury yield curve via the ICE US Treasury 1-3 Year Bond Index, which gives it a duration of around 1.9 years. SHY charges a 0.15% expense ratio.
iShares 7-10 Year Treasury Bond ETF (IEF)
“Intermediate-term bond ETFs invest in bonds with maturities between three and 10 years,” says Wes Moss, managing partner and chief investment strategist at Capital Investment Advisors. “They offer a balance between risk and return and are suitable for investors who have a medium-term horizon.”
The belly of the yield curve can be captured by intermediate-term bond ETFs like IEF, which tracks the ICE U.S. Treasury 7-10 Year Bond Index. Currently, investors can expect a 4% average yield to maturity and a 7.2-year duration. IEF charges the same 0.15% expense ratio as SHY.
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.”
One of the most popular long-term bond ETFs on the market today is TLT. With an average duration of 16.5 years, this ETF is highly sensitive to interest rate movements. Currently, it pays a 4.4% yield to maturity. As with SHY and IEF, TLT charges a 0.15% expense ratio.
SPDR Portfolio Mortgage-Backed Bond ETF (SPMB)
“Mortgage-backed securities (MBS) ETFs offer yields that are comparable to investment-grade corporate bonds, accompanied with high credit quality and monthly cash flows,” Francis says. For low-cost exposure to these bonds, investors can buy SPMB at a 0.05% expense ratio.
This ETF tracks the Bloomberg U.S. MBS Index, which holds U.S. agency mortgage pass-through securities issued by Federal National Mortgage Association (Fannie Mae), the Federal Home Loan Mortgage Corp. (Freddie Mac) and the Government National Mortgage Association (Ginnie Mae).
[READ: Bonds and Rates: Will Bonds Revive as Rates Fall?]
SPDR Bloomberg 1-3 Month T-Bill ETF (BIL)
“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 on the market is BIL, with a 30-day median bid-ask spread of 0.01%. “This is important to be aware of when choosing bond ETFs, as a large spread can equate to a worse initial purchase price,” Dusina says. BIL pays a 4.7% yield to maturity and charges a 0.14% expense ratio.
Amplify Samsung SOFR ETF (SOFR)
“SOFR offers investors nearly the shortest duration exposure available — overnight — minimizing interest rate risk while providing reliable monthly income,” says Christian Magoon, CEO of Amplify ETFs. This ETF can be an excellent alternative to a money market fund, with a 4.7% 30-day SEC yield.
“As the only ETF designed to track the Secured Overnight Financing Rate, a secured rate collateralized by primarily high-quality U.S. Treasuries, SOFR stands out as a unique and stable option for bond investors,” Magoon says. The ETF charges a 0.2% expense ratio.
Invesco Total Return Bond ETF (GTO)
“GTO is an actively managed total return bond ETF in the core-plus category,” says Brian McMullen, senior fixed income ETF strategist at Invesco. Core-plus bonds like GTO are designed to potentially outperform passive aggregate bond ETFs by layering on exposure to more exotic fixed-income securities.
“GTO provides exposure to a core bond allocation but will also try to capture opportunities in ‘non-core’ segments of fixed income, such as high-yield corporate bonds, emerging market debt and non-agency MBS,” McMullen explains. The ETF pays a 5.6% yield to maturity and charges a 0.25% expense ratio.
Invesco Equal Weight 0-30 Year Treasury ETF (GOVI)
“GOVI is designed to provide exposure across maturities in the Treasury market,” McMullen explains. “Its unique equal-weight approach provides a longer duration profile relative to traditional market-cap-weighted indexes, which tend to be more weighted towards Treasurys with shorter maturity dates.”
GOVI is best suited for investors interested in capturing the broad U.S. Treasury market in a single ticker. Currently, the ETF has a duration of around 10.6 years against a 4% yield to maturity. It makes monthly distributions and is fairly cost-effective, with a 0.15% expense ratio.
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9 of the Best Bond ETFs to Buy Now originally appeared on usnews.com
Update 10/08/24: This story was previously published at an earlier date and has been updated with new information.
