The U.S. stock market is looking expensive no matter how you slice it. Buoyed by the rapid growth of the tech sector over the past decade, valuations are at a premium. While we’re not seeing the heights reached during the dot-com bubble, stocks remain pricey.
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For the S&P 500, the cyclically adjusted price-to-earnings (CAPE) ratio — also known as the Shiller P/E Ratio — stands at 38.5 as of Nov. 29. For context, the historical mean and median are 17.2 and 16, respectively. The last time it was this high was October 2021, following a COVID-19 stimulus-fueled surge, which was promptly followed by 2022’s bear market.
If you’re searching for value in today’s market, it might be time to consider skipping stocks altogether and turning to their less glamorous counterparts: bonds. Bonds are still recovering from the walloping they took in 2022, a year marked by rising rates and inflation.
There’s an old rule of thumb, perhaps considered too conservative these days, that the percentage of your portfolio allocated to bonds should be equivalent to your age, with the remainder invested in stocks. But even Benjamin Graham, the father of value investing and Warren Buffett‘s mentor, recommended never going below a 25% allocation to bonds. Why?
Bonds, particularly those with high credit quality, provide your portfolio with a buffer. They’re not perfectly correlated with stocks, as they’re subject to interest rate and credit risk instead of market risk. When stocks decline, bonds — especially Treasurys — have the potential to cushion your portfolio or even rise in value during a “flight to quality.”
Even if you have a high risk tolerance and don’t rely on bonds for hedging, there are other good reasons to include them. Lower-credit-quality bonds or those in emerging markets offer higher yields, making them great for income seekers. For those in high tax brackets, municipal bonds provide federal tax-exempt income — and in some cases, state exemptions as well.
Here’s a look at nine of the best bond exchange-traded funds (ETFs) to buy for 2025:
| ETF | Expense ratio | Yield to maturity |
| Vanguard Total Bond Market ETF (ticker: BND) | 0.03% | 4.7% |
| Vanguard Core-Plus Bond ETF (VPLS) | 0.20% | 5.1% |
| SPDR Bloomberg 1-3 Month T-Bill ETF (BIL) | 0.1356% | 4.5% |
| Amplify Samsung SOFR ETF (SOFR) | 0.20% | 4.4%* |
| iShares 1-3 Year Treasury Bond ETF (SHY) | 0.15% | 4.2% |
| iShares 3-7 Year Treasury Bond ETF (IEI) | 0.15% | 4.2% |
| iShares 10-20 Year Treasury Bond ETF (TLH) | 0.15% | 4.5% |
| SPDR Portfolio Mortgage-Backed Bond ETF (SPMB) | 0.05% | 5.0% |
| Xtrackers Municipal Infrastructure Revenue Bond ETF (RVNU) | 0.15% | 3.8%* |
*30-day SEC yield.
Vanguard Total Bond Market ETF (BND)
“Investors have seen bond ETFs successfully weather multiple storms in the markets, including the pandemic sell-off in March 2020,” says John Croke, head of active fixed income product management at Vanguard. “Time and again, bond ETFs have demonstrated their resilience and liquidity for investors.”
Vanguard’s largest bond ETF is BND, with over $117 billion in assets. For a low 0.03% expense ratio, BND tracks more than 11,300 investment-grade bonds represented by the Bloomberg U.S. Aggregate Float Adjusted Index. The ETF currently has a 4.7% yield to maturity and a six-year average duration.
Vanguard Core-Plus Bond ETF (VPLS)
“Rich stock prices and attractive current yields are creating a groundswell of demand for bond ETFs — particularly actively managed ETFs, which allow investors who are seeking portfolio diversification” the additional profit potential that comes from active tilts, says Steve McFee, senior portfolio manager at Vanguard.
Investors looking to potentially outperform passive bond index ETFs like BND might like VPLS. This actively managed bond ETF uses a “core plus” strategy that allocates the majority of its portfolio to investment-grade bonds, while leaving some room for high-yield and emerging market bonds.
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.”
With a 0.01% 30-day median bid-ask spread, BIL is one of the most liquid bond ETFs available. “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 4.5% yield to maturity and charges a 0.1356% expense ratio.
Amplify Samsung SOFR ETF (SOFR)
“As the only ETF designed to track the secured overnight financing rate, a secured rate collateralized by high-quality U.S. Treasurys, SOFR stands out as a unique and stable option for bond investors,” says Christian Magoon, founder and CEO of Amplify ETFs. This ETF can be an alternative to T-bill ETFs like BIL.
“SOFR offers investors nearly the shortest duration exposure available — overnight — minimizing interest rate risk while providing reliable monthly income,” Magoon says. The ETF has very low price volatility, above-average liquidity and charges a reasonable 0.2% expense ratio.
[READ: 5 Great Fixed-Income Funds to Buy for 2025]
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.”
For affordable exposure to short-term Treasurys beyond T-bills, investors can buy SHY. This ETF tracks the ICE U.S. Treasury 1-3 Year Bond Index for a 0.15% expense ratio. It currently pays a 4.2% average yield to maturity while possessing lower-than-average interest rate sensitivity with a 1.9-year duration.
iShares 3-7 Year Treasury Bond ETF (IEI)
“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 next step up from SHY is IEI, which tracks the ICE U.S. Treasury 3-7 Year Bond Index for an identical 0.15% expense ratio. Currently, investors can expect an average 4.2% yield to maturity with moderate interest rate sensitivity at a duration of 4.3 years. As with SHY, IEI pays monthly distributions.
iShares 10-20 Year Treasury Bond ETF (TLH)
“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.”
Moving up the yield curve from IEI brings investors to TLH. This ETF tracks the ICE U.S. Treasury 10-20 Year Bond Index. This endows TLH with a 4.5% yield to maturity and much higher interest rate sensitivity, with a duration of 12.6 years. As with most of iShares’ Treasury ETFs, TLH also 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 example, SPMB is currently paying a 5% yield to maturity with the majority of its portfolio rated AA1.
SPMB is designed to replicate the Bloomberg U.S. MBS Index. The ETF holds MBS issued and backed by three agencies: the Federal National Mortgage Association (Fannie Mae), the Federal Home Loan Mortgage Corp. (Freddie Mac) and the Government National Mortgage Association (Ginnie Mae).
Xtrackers Municipal Infrastructure Revenue Bond ETF (RVNU)
“To our knowledge, RVNU is the only ETF providing exposure specifically to revenue-backed municipal bonds used to finance key components of the U.S. infrastructure, such as airports, sewers, toll roads, bridges and tunnels,” says Arne Noack, regional investment head — Xtrackers, Americas — at DWS Group.
For a 0.15% expense ratio, investors get a portfolio averaging a duration of 8.5 years, with more than 85% of the portfolio comprising bonds rated AA or A. “Due to its investment in municipal bonds, RVNU may be of particular interest to tax-sensitive investors — Bloomberg currently estimates a tax-equivalent yield of 6.8%,” Noack notes.
[SEE: 7 Best Monthly Dividend Stocks to Buy Now.]
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9 of the Best Bond ETFs to Buy for 2025 originally appeared on usnews.com
Update 12/04/24: This story was previously published at an earlier date and has been updated with new information.
