Best Bond ETFs to Buy Now (October 2025): 5 Big, Liquid Picks

Bond yields near 4% in late 2025 create one of the most compelling income opportunities in years. After the Federal Reserve's aggressive rate-hiking cycle from 2022 through 2023, the central bank pivoted to cuts in 2024, bringing the federal funds rate to 4.00%-4.25% by July 2025, with additional cuts projected through 2025.

This shift marks a turning point for bond investors who endured brutal losses during the hiking cycle but now face attractive entry points for stable income and capital appreciation.

If you're one of these investors and you're trying to figure out which are the best bond ETFs to buy now, this article is perfect for you. It cuts through the noise to deliver exactly what you need: five category-leading bond ETFs, clear explanations of why each belongs in your portfolio, and a ready-to-use allocation model you can implement today.

We focus exclusively on big, liquid, low-cost U.S.-listed bond ETFs, selecting one fund per bond sector to eliminate overlap and confusion. All data is current as of October 16, 2025, and Financer updates this analysis every two months with fresh market data, swapping ETFs if characteristics deteriorate or superior alternatives emerge.

You'll get transparent selection criteria, realistic risk warnings, and a practical roadmap for building institutional-quality bond exposure at rock-bottom costs. Whether you're a beginner seeking your first bond position or an experienced allocator streamlining your fixed-income sleeve, this guide delivers actionable intelligence you can use right now.

We evaluate hundreds of U.S.-listed bond ETFs using strict criteria to identify category leaders that deliver the best combination of diversification, liquidity, and cost efficiency.

Our four-part methodology ensures recommendations stay current and actionable as markets evolve:

Universe Filter

We consider only U.S.-listed bond ETFs with assets under management of at least $5 billion or top-2 ranking in their category by assets.

Funds must demonstrate tight bid-ask spreads, typically 0.05% or less, ensuring you can enter and exit positions without paying excessive trading costs.

Each fund must have a clear, consistent mandate, whether index-tracking or a transparent active strategy, and sufficient trading volume for easy execution.

Cost Threshold

Expense ratios must be competitive for the category. Core aggregate, Treasury, and TIPS funds typically run 0.03%-0.10%; investment-grade corporate funds 0.04%-0.20%; specialized categories may run slightly higher but must justify costs with superior performance or unique market access.

We reject funds that charge premium fees without delivering commensurate value.

Portfolio Fit

Each pick must serve a distinct role in your bond allocation: core ballast, rate hedge, inflation protection, quality income, or global diversification.

We avoid overlapping funds to keep allocations clean and easy to implement.

You shouldn't need to decode which funds compete with each other or wonder if you're doubling up on the same bonds.

Update Cadence

Financer re-verifies AUM, expense ratios, bid-ask spreads, and performance data every two months. If a fund's characteristics deteriorate (costs rise, liquidity drops, mandate drifts) or a superior alternative emerges, we replace it and notify readers immediately.

This disciplined process ensures our recommendations stay current as the bond market evolves through 2025 and beyond.

As of October 16, 2025, all data reflects the latest available information from fund providers, Morningstar, ETF Database, and market data services.

This rigorous approach gives you confidence that every recommendation meets institutional standards for quality, cost, and liquidity.

The following five ETFs represent the gold standard in their respective bond categories, each chosen for size, liquidity, low cost, and a clear portfolio purpose.

Together, these funds cover the full spectrum of bond investing from ultra-safe Treasuries to quality corporate income, from inflation protection to global diversification.

Each fund serves one distinct role, eliminating overlap and confusion. You won't find three different aggregate bond funds or two competing Treasury ETFs here. Instead, you get a clean, institutional-quality framework that anchors serious bond portfolios.

The five categories are:

1. Core U.S. Aggregate for diversified ballast across Treasuries, agency mortgage-backed securities, and investment-grade corporates, providing one-ticket exposure to the entire U.S. investment-grade bond market.
2. Intermediate U.S. Treasuries (7-10 year) for high-quality rate hedging with moderate duration, offering the sweet spot between short-term bills and long-term bonds.
3. U.S. TIPS for inflation protection via CPI-linked principal adjustments, defending purchasing power when inflation accelerates.
4. Investment-Grade Corporates for enhanced income from large, creditworthy U.S. issuers, adding 80-100 basis points of yield over comparable Treasuries.
5. International Bonds (USD-hedged) for exposure to developed-market sovereigns and corporates without currency risk, diversifying rate regimes and issuer bases.

Investors can swap tickers for similar funds (for instance, AGG for BND, TIP for SCHP or VTIP) as long as they maintain the five distinct roles.

All picks feature expense ratios at or below 0.20%, with most significantly lower (0.03%-0.15%), AUM exceeding $5 billion for deep liquidity, and tight bid-ask spreads typically 0.01%-0.05%.

Each mini-profile below details the fund's role, why it belongs in the October 2025 update of this 'Best bond ETF to buy now' article, key statistics (ticker, expense ratio, AUM, duration, yield), and primary risks you must understand.

These are not exotic or speculative bets. They're institutional-quality building blocks that anchor serious bond portfolios, used by pension funds, endowments, and financial advisors managing billions. Now you get access to the same tools at the same rock-bottom costs.

Role & why it belongs:

• A core U.S. aggregate bond ETF is the foundational holding for most bond allocations, providing one-ticket exposure to the entire U.S. investment-grade bond market.
• AGG and BND both track the Bloomberg U.S. Aggregate Bond Index, which holds approximately 40% U.S. Treasuries, 30% agency mortgage-backed securities, 25% investment-grade corporate bonds, and small allocations to commercial MBS and other sectors.
• This diversified mix delivers ballast that historically cushions equity volatility, stable income near 4% yield-to-worst as of late 2025, and the default anchor for both beginner and institutional bond sleeves.
• Core aggregate funds belong in October 2025 because they offer comprehensive exposure without requiring you to build a multi-fund bond ladder yourself. You get Treasuries for safety, MBS for yield, and corporates for income enhancement, all in one fund with minimal cost and maximum liquidity.

Fund comparison:

• AGG and BND are functionally identical, both charging 0.03% expense ratios and tracking the same index with nearly identical performance.
• AGG delivered 1.85% annualized over 10 years, while BND posted 1.76%, a difference so small it's attributable to tracking variation rather than structural advantage.
• AGG leads in liquidity with $128 billion AUM and 11 million average daily share volume, making it ideal for large trades, institutional use, and investors who prioritize the tightest possible bid-ask spreads (typically 0.01%).
• BND offers slightly higher yield in some periods due to minor index sampling differences and integrates seamlessly for Vanguard clients who want to consolidate holdings within one fund family.
• Schwab U.S. Aggregate Bond ETF (SCHZ) is a third option with 0.03% expense ratio and $8.6 billion AUM, best for Schwab account holders who want to avoid transaction fees.
• We selecteded AGG as the default for maximum liquidity and institutional-grade execution, but affirm that BND and SCHZ are functionally equivalent for most retail investors.

Current metrics (October 2025): Ticker AGG/BND | Expense Ratio 0.03% | AUM $128B (AGG) / $100B+ (BND) | SEC Yield ~4.0% | Effective Duration ~6.0 years | Average Credit Quality AA.

2025 performance:

• AGG returned 6.2% through mid-2025 and BND 6.7% year-to-date as of October 10, 2025, benefiting from Federal Reserve rate cuts and stable credit spreads.
• Both funds posted positive returns after brutal losses in 2022 (AGG fell 8.8% during the Fed's hiking cycle), demonstrating the recovery potential when rate policy pivots.

Primary risks:

• Duration risk is the primary concern. Bond prices fall when rates rise, and with effective duration near 6.0 years, a 1% increase in rates would cause AGG/BND to drop approximately 6% in price. The Bloomberg U.S. Aggregate Index lost 8.8% during the 2022-2023 Fed hiking cycle, the worst drawdown in decades.
• Mortgage prepayment risk affects the MBS component. If rates drop sharply, homeowners refinance, causing MBS to prepay faster than expected and forcing the fund to reinvest at lower yields.
• Credit spread risk exists in the corporate and MBS allocations. Spreads can widen during recessions or financial stress, causing these bonds to underperform Treasuries even though the fund's AA average credit quality provides substantial cushion.

For most investors, AGG or BND is the single most important bond ETF, your portfolio's defensive anchor and primary source of stable income.

Role & why it belongs:

• Intermediate-maturity Treasuries (7-10 year) offer high-quality rate hedging with moderate duration, striking a balance between short-term bills (low sensitivity, low yield) and long-term bonds (high volatility).
• IEF belongs in October 2025's best bond ETFs to buy because Treasuries historically diversify equity risk, rallying during risk-off periods and recessions when investors flee to safety.
• The 7-10 year maturity captures meaningful yield, approximately 4.0% as of late 2025, without the extreme price swings of 20+ year bonds.
• The iShares 20+ Year Treasury Bond ETF (TLT) fell sharply during the 2022-2023 rate hikes, dropping over 30% at one point, while IEF held up better with more manageable drawdowns.
• Intermediate Treasuries are backed by the full faith and credit of the U.S. government, carrying zero credit risk and making them the ultimate safe-haven asset.
• The 10-year Treasury yield serves as the global risk-free rate benchmark and has the biggest impact on mortgage rates, making IEF a core holding for rate-sensitive strategies and investors who want pure government exposure without the volatility of long-duration bonds.

Fund details:

• IEF tracks the ICE U.S. Treasury 7-10 Year Bond Index with a 0.15% expense ratio, $30+ billion AUM, tight liquidity, and monthly distributions.
• The fund holds only U.S. Treasury securities maturing in 7-10 years, providing pure exposure without corporate credit risk, MBS prepayment risk, or other complications.
• Investors seeking shorter duration can use iShares 3-7 Year Treasury Bond ETF (IEI) for less rate sensitivity, or longer with TLT (20+ year) for maximum duration and volatility. However, 7-10 year offers the best risk/reward for most allocations, providing sufficient yield to matter while avoiding the extreme swings that make long-term Treasuries unsuitable for conservative portfolios.

Current metrics (October 2025): Ticker IEF | Expense Ratio 0.15% | AUM $30B+ | SEC Yield ~4.0% | Effective Duration ~7.5 years | Credit Quality AAA (U.S. government).

2025 performance:

• Intermediate Treasuries rallied modestly in 2025 as the Federal Reserve began cutting rates, with IEF delivering mid-single-digit returns year-to-date.
• Performance lags equities and corporate bonds during risk-on periods but provides essential ballast during volatility spikes.
• When stocks sold off sharply in early 2020 and again in late 2022, intermediate Treasuries rallied as investors sought safety, demonstrating their diversification value.

Primary risks:

• Rate risk is the dominant concern. If the Fed pauses rate cuts or inflation resurges, forcing the central bank to hike again, IEF will post negative returns. A 1% increase in yields causes approximately 7.5% price decline given the fund's duration.
• Opportunity cost is real during bull markets. Treasuries underperform stocks and corporate bonds when risk appetite is strong, and investors reaching for yield may find the 4% return insufficient compared to equity gains.
• Reinvestment risk affects long-term holders. If rates fall sharply, maturing bonds reinvest at lower yields, reducing future income.

IEF is your portfolio's shock absorber, boring during bull markets, invaluable during bear markets. Every balanced portfolio needs this anchor.

Role & why it belongs:

• Treasury Inflation-Protected Securities (TIPS) provide direct inflation hedging through a unique mechanism. The principal adjusts upward with CPI increases (and downward with deflation), while interest payments are calculated on the adjusted principal. This means your purchasing power is protected automatically.
• TIPS belong in October 2025 after years of elevated inflation that peaked above 9% in 2022. Although inflation has moderated to around 3% as of late 2025, it remains above the Federal Reserve's 2% target, and inflation expectations suggest persistent pressure.
• TIPS offer real yields (inflation-adjusted returns) near 2.0%-2.5%, attractive relative to historical norms when real yields were often negative. They pair well with nominal Treasuries, diversifying inflation risk while maintaining government credit quality and zero default risk.
• TIPS underperformed during the 2022-2023 rate shock when real yields spiked from negative territory to positive, causing price declines, but they've recovered as inflation moderated and real yields normalized.

Fund comparison:

• TIP and SCHP both track the Bloomberg U.S. TIPS Index (all maturities), providing broad TIPS exposure.
• TIP charges 0.19% expense ratio with $40B+ AUM, offering strong liquidity and the largest market presence. SCHP charges just 0.03% expense ratio with $10B+ AUM, making it the value pick for cost-conscious investors. The 0.16% annual savings from choosing SCHP over TIP compounds meaningfully over decades.
• Performance is nearly identical: SCHP posted 4.64% year-to-date versus TIP's 4.74% through mid-2025, a trivial difference.
• For shorter duration and less rate sensitivity, consider Vanguard Short-Term Inflation-Protected Securities ETF (VTIP, 0.04% expense ratio), which focuses on TIPS maturing in under 5 years and delivered 5.4% annualized over three years. Short-term TIPS offer inflation protection with minimal duration risk, ideal for conservative investors or those with near-term spending needs.
• We recommend SCHP as the default due to its 0.03% expense ratio (84% cheaper than TIP) with nearly identical performance and sufficient liquidity for most investors.

Current metrics (October 2025): Ticker SCHP (or TIP) Expense Ratio 0.03% (SCHP) | 0.19% (TIP), AUM $10B+ (SCHP) | $40B+ (TIP), SEC Yield ~4.5% (includes inflation adjustment), Effective Duration ~7.0 years, Credit Quality AAA.

2025 performance:

• TIPS ETFs returned 4.6%-4.7% year-to-date as inflation stabilized near 3% and real yields remained attractive.
• VTIP delivered 5.4% annualized over 3 years, demonstrating the value of shorter-duration TIPS during volatile rate periods when longer-duration bonds suffered larger drawdowns.

Primary risks:

• Real rate risk means TIPS prices fall when real yields rise, even if inflation stays elevated. This happened in 2022-2023 when the Fed hiked aggressively and real yields spiked from negative to positive, causing TIPS to post negative returns despite rising inflation.
• Deflation risk exists, though it's rare. If CPI declines, TIPS principal adjusts downward, reducing the value of your investment. However, the Treasury guarantees return of original par value at maturity, protecting you from permanent loss.
• Breakeven inflation shifts affect relative performance. If market inflation expectations fall, TIPS underperform nominal Treasuries because the inflation premium embedded in TIPS pricing compresses.

SCHP or VTIP belongs in every bond allocation as insurance against unexpected inflation, cheap protection that pays off when you need it most.

Role & why it belongs:

• Investment-grade (IG) corporate bonds offer higher yields than Treasuries by accepting modest credit risk from large, creditworthy U.S. issuers rated BBB- or higher by major rating agencies.
• LQD belongs in October 2025 because corporate bond spreads at 74 basis points (option-adjusted spread) represent near 15-year tights, reflecting strong corporate fundamentals, low default risk, healthy balance sheets, and stable earnings.
• The Bloomberg U.S. Aggregate Bond Index yield-to-worst of 4.81% as of September 30, 2025, provides compelling income, roughly 80-100 basis points above comparable-duration Treasuries.
• Investment-grade corporates returned 1.5% in Q3 2025 alone and have attracted $193 billion in inflows through Q3, demonstrating sustained investor demand for quality credit.
• IG corporates enhance portfolio income without jumping to high-yield (junk) bonds, maintaining quality and liquidity while delivering meaningful yield pickup.

Fund details:

• LQD tracks the Markit iBoxx USD Liquid Investment Grade Index with 0.14% expense ratio, $35B+ AUM, and deep liquidity with over 1 million average daily share volume.
• The fund holds 2,000+ bonds from issuers like Apple, Microsoft, JPMorgan Chase, Verizon, and Johnson & Johnson, diversified across sectors: financials approximately 30%, technology 15%, industrials 15%, utilities 10%, and other sectors filling the remainder. This diversification reduces single-issuer risk while maintaining exposure to the sectors driving the U.S. economy.
• Alternative options include Vanguard Intermediate-Term Corporate Bond ETF (VCIT, 0.04% expense ratio), which focuses on 5-10 year maturities and returned 8.0% annualized over three years, earning a Gold rating from Morningstar for its low cost and disciplined approach. VCIT's shorter duration reduces rate sensitivity compared to LQD, making it attractive for investors who want corporate income without the full duration exposure of the broad IG corporate market.

Current metrics (October 2025): Ticker LQD, Expense Ratio 0.14%, AUM $35B+, SEC Yield ~4.8%, Effective Duration ~8.5 years, Average Credit Quality A/BBB.

2025 performance:

• LQD and VCIT benefited from tight credit spreads and Federal Reserve rate cuts, delivering mid-to-high single-digit returns year-to-date.
• Corporate bonds outperformed Treasuries as investors reached for yield in a stable credit environment where default risk remained minimal and corporate earnings held steady.

Primary risks:

• Credit spread risk is the primary concern. Spreads can widen sharply during recessions or financial stress when investors flee to safety. IG spreads jumped from 70 basis points to 150+ basis points in early 2020 during the COVID panic and again in 2022 during the Fed's aggressive hiking cycle. Wider spreads mean lower bond prices and negative returns.
• Duration risk amplifies rate sensitivity. LQD's effective duration near 8.5 years means a 1% increase in rates causes approximately 8.5% price decline, more than core aggregate funds.
• Event risk includes mergers, acquisitions, and leveraged buyouts that can trigger rating downgrades. M&A activity rose in 2025, increasing the probability that investment-grade issuers take on more debt to finance deals, potentially pushing them toward the BBB- threshold or even into high-yield territory.
• Concentration risk exists in the financials sector, which represents approximately 30% of LQD, creating exposure to bank and insurance company performance and regulatory changes. LQD enhances bond portfolio income with quality credit.

Accept modest spread risk for 80-100 basis points of extra yield over Treasuries.

Role & why it belongs:

• International bonds provide exposure to developed-market sovereigns and corporates outside the U.S., broadening the issuer base and diversifying rate regimes.
• BNDX belongs in October 2025's best bonds to buy because the fund hedges currency exposure back to USD, eliminating foreign exchange volatility and isolating pure bond returns.
• International bonds often move differently than U.S. bonds due to divergent central bank policies from the European Central Bank, Bank of Japan, and Bank of England, as well as regional economic cycles that don't perfectly correlate with U.S. conditions.
• The global bond market totals $141 trillion versus $115 trillion for global equities, yet most U.S. investors hold zero international bonds, missing a massive diversification opportunity. Adding 10% BNDX fills this gap without introducing currency risk that can overwhelm bond returns.
• BNDX yields are lower than U.S. bonds, reflecting lower foreign interest rates, but the diversification benefit justifies the allocation by reducing portfolio volatility and dependence on U.S. rate policy.

Fund details:

• BNDX tracks the Bloomberg Global Aggregate ex-USD Float Adjusted RIC Capped Index (USD Hedged) with 0.07% expense ratio, $100B+ AUM, and exposure to approximately 7,000 bonds from countries like Japan, Germany, France, and the United Kingdom.
• The fund holds primarily sovereign debt from developed markets with AA average credit quality, providing high-quality exposure without emerging market risk.
• Currency hedging costs fluctuate with interest rate differentials between the U.S. and foreign countries but are embedded in returns, so investors don't pay separately or need to manage hedge ratios.
• Unhedged alternatives like iShares Core International Aggregate Bond ETF (IAGG) exist but introduce FX risk that can overwhelm bond returns. During periods when the dollar strengthens, unhedged international bonds post negative returns even if the underlying bonds perform well, making hedged exposure the default choice for most U.S. investors.

Current metrics (October 2025): Ticker BNDX, Expense Ratio 0.07%, AUM $100B+, SEC Yield ~3.0%, Effective Duration ~8.0 years, Credit Quality AA (sovereign-heavy).

2025 performance:

• BNDX posted modest returns in 2025, lagging U.S. bonds due to lower yields but providing diversification during periods of U.S. rate volatility.
• Long-term data shows that a 10-20% international bond allocation reduces portfolio volatility without sacrificing much return, making it a valuable addition despite lower absolute yields.

Primary risks:

• Foreign rate risk drives performance. International bonds fall when foreign central banks hike rates. ECB and BOJ policy shifts, which often diverge from Federal Reserve actions, determine BNDX returns.
• If European or Japanese rates rise faster than U.S. rates, BNDX underperforms domestic bonds.
• Hedge cost fluctuations vary with interest rate differentials and can compress returns. When U.S. rates exceed foreign rates by wide margins, the cost of hedging foreign bonds back to USD increases, reducing net yield.
• Sovereign credit risk exists, though BNDX focuses on developed markets with AA average ratings. Exposure to countries like Italy or Spain introduces modest default risk compared to U.S. Treasuries, though actual defaults among developed sovereigns are extremely rare.
• Lower yields create opportunity cost. International bonds yield 100+ basis points less than U.S. bonds, meaning you sacrifice income for diversification.

BNDX is the portfolio's global diversifier. A 10% allocation smooths returns and reduces dependence on U.S. rate policy.

The following model allocation assumes you've determined your target bond allocation (for example, 40% bonds and 60% stocks for a balanced portfolio) and now need to divide that bond sleeve across the five categories.

We present the balanced core allocation, the default for most investors: AGG/BND 40%, IEF 20%, TIP/SCHP 15%, LQD 15%, BNDX 10%. This allocation balances income, safety, inflation protection, and diversification, suitable for balanced portfolios (40/60 or 50/50), and conservative investors.

Rationale for Each Weight

1. AGG/BND at 40% provides diversified ballast and serves as the portfolio's defensive anchor, covering Treasuries, mortgage-backed securities, and investment-grade corporates in one fund. This is your core holding, the foundation on which everything else builds.
2. IEF at 20% adds pure Treasury exposure for rate hedging and safe-haven rallies, complementing AGG's broader mix. When stocks crash or recession fears spike, IEF rallies, cushioning portfolio losses.
3. TIP/SCHP at 15% delivers inflation protection without dominating the allocation. This is enough to matter if inflation resurges, but not so much that deflation risk becomes a problem. TIPS provide asymmetric protection, losing modestly when inflation is low but gaining significantly when inflation accelerates.
4. LQD at 15% enhances income with quality corporate credit, adding 80-100 basis points of yield over Treasuries while maintaining investment-grade quality. This sleeve boosts total portfolio income without jumping to junk bonds.
5. BNDX at 10% provides global diversification and exposure to non-U.S. rate regimes, smoothing returns when U.S. bonds struggle. This allocation recognizes that the U.S. represents only a portion of the global bond market and diversification across issuers and central bank policies reduces risk.

Alternative Allocations

More defensive (for risk-averse investors or those expecting rate volatility): Shift 5-10% from LQD to IEF or TIP, resulting in AGG 40%, IEF 25%, TIP 20%, LQD 10%, BNDX 5%. This reduces credit risk and increases government bond exposure, sacrificing yield for safety.

More income (for yield-focused investors comfortable with modest credit risk): Shift 5-10% from IEF/TIP to LQD, resulting in AGG 40%, IEF 15%, TIP 10%, LQD 25%, BNDX 10%. This boosts yield by approximately 20-30 basis points but increases credit spread sensitivity.

Aggressive income-seekers might add a 5-10% sleeve of high-yield bonds using iShares iBoxx $ High Yield Corporate Bond ETF (HYG), but note that HYG introduces junk-rated credit risk and higher volatility.

High-yield bonds are suitable only for investors who understand and accept default risk, as spreads can widen dramatically during recessions.

Rebalancing Guidance

We recommend annual rebalancing to maintain target weights, or semi-annual if markets are volatile. Use new contributions to buy underweight categories rather than selling overweight positions, which is more tax-efficient.

Monitor for significant drift (more than 5% from target) and rebalance promptly to maintain your intended risk profile.

This model allocation is a starting point. Adjust weights based on your risk tolerance, income needs, and market outlook, but keep the five roles distinct to avoid overlap.

The five core picks cover most investors' needs, but specialized bond ETFs can enhance portfolios for specific goals. Here are four additional categories to consider.

Short-Term Bond ETFs

Short-term bonds (1-3 year maturities) offer lower duration and rate risk, ideal for conservative investors or those with near-term spending needs.

Recommended:

• Vanguard Short-Term Bond ETF (BSV, 0.04% expense ratio, $64.9B AUM, 4.7% year-to-date return) for broad short-term exposure across Treasuries, agencies, and investment-grade corporates.
• Vanguard Short-Term Corporate Bond ETF (VCSH, 0.04% expense ratio, 5.72% year-to-date) focuses on investment-grade corporate credit for higher yield.
• PIMCO Enhanced Short Maturity Active ETF (MINT, 0.35% expense ratio) offers ultrashort duration (less than 1 year) and active management, functioning as a cash alternative with minimal rate risk.

Short-term bonds sacrifice yield for stability, suitable for emergency funds, near-term spending goals, or bond ladder strategies where you need predictable maturity dates.

Municipal Bond ETFs

Municipal bonds pay federally tax-free interest, making them attractive for high earners in the 22%+ tax brackets. After-tax yields often exceed taxable bonds for investors in high brackets.

Recommended:

• Vanguard Tax-Exempt Bond ETF (VTEB, 0.05% expense ratio, 2.1% year-to-date) for broad municipal exposure
• iShares National Muni Bond ETF (MUB, 0.05% expense ratio, 2.0% year-to-date) as an alternative.

Municipal bonds underperformed in early 2025 due to record issuance, which flooded the market with supply, but rebounded with $7.9 billion in inflows in September as technical factors improved.

Munis are best for taxable accounts (wasted in IRAs where interest is already tax-deferred) and carry state and local credit risk, though defaults among investment-grade munis are rare.

Convertible Bond ETFs

Convertible bonds combine bond income with equity upside, convertible into stock at a set price. This creates an asymmetric return profile where you capture most of the upside when stocks rally but limit downside when stocks fall.

Recommended:

• iShares Convertible Bond ETF (ICVT, 0.20% expense ratio, 21.70% one-year return as of October 2, 2025) as the category leader. Convertibles led 2025 performance as stocks rallied and credit spreads tightened, but carry equity-like volatility and are suitable only for aggressive bond allocators who want equity exposure within their bond sleeve.

Floating-Rate Bond ETFs

Floating-rate notes reset interest payments periodically (tied to the Secured Overnight Financing Rate, or SOFR), offering stable prices during rate volatility. When rates rise, floating-rate bonds increase their coupon payments, maintaining stable market values.

Recommended for investors seeking income without duration risk, but note that floating-rate bonds underperform when rates fall because coupon payments decline.

These specialized categories complement the core 5. Add them only if they solve a specific problem in your portfolio.

Bond yields near 4% in late 2025 create a compelling income opportunity after the dramatic rate increases from 2022 through 2023.

The Federal Reserve's pivot to rate cuts, bringing the federal funds rate to 4.00%-4.25% with additional cuts projected through 2025, supports bond price appreciation as yields fall further.

This is one of the most attractive entry points for bond investors in years, combining high starting yields with the potential for capital gains.

The five recommended ETFs deliver a complete, institutional-quality bond allocation at rock-bottom costs:

• AGG or BND provides core diversification across Treasuries, mortgage-backed securities, and investment-grade corporates.
• IEF offers pure Treasury exposure for rate hedging and safe-haven protection.
• TIP or SCHP defends purchasing power against unexpected inflation.
• LQD enhances income with quality corporate credit, adding 80-100 basis points of yield over Treasuries.
• BNDX provides global diversification and exposure to non-U.S. rate regimes without currency risk.

All picks feature expense ratios at or below 0.20%, with most significantly lower (0.03%-0.15%), AUM exceeding $5 billion for deep liquidity, and tight bid-ask spreads typically 0.01%-0.05%.

The balanced model allocation (40% core aggregate, 20% intermediate Treasuries, 15% TIPS, 15% investment-grade corporates, 10% international bonds) is a starting point that investors can adjust based on risk tolerance and income needs.

Review your current bond holdings. Are you paying too much in fees? Overexposed to a single category? Missing inflation protection or global diversification? Use this guide to build or refine your bond allocation today.

Financer updates this analysis every two months to ensure recommendations stay current as markets evolve, swapping funds if costs rise, liquidity deteriorates, or superior alternatives emerge.

A well-constructed bond portfolio isn't glamorous, but it's the foundation of financial resilience, providing steady income, cushioning equity volatility, and protecting purchasing power.

The five ETFs above give you everything you need to build that foundation at minimal cost.