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12 Best Bond ETFs To Buy

In this article, we discuss 12 best bond ETFs to buy. If you want to skip our discussion on the bond market, head over to 5 Best Bond ETFs To Buy

In November 2023, experts observed that millennials are showing a greater interest in bond exchange-traded funds compared to older investors. A Charles Schwab survey revealed that millennials, born between the early 1980s and mid-1990s, have an average of 45% of their investment portfolios allocated to fixed income, higher than Generation X and baby boomers with 37% and 31% respectively. Additionally, 51% of millennials plan to invest in fixed income ETFs in 2024 compared to 45% of Gen X and 40% of boomers. However, this conservative approach contradicts millennials’ typically longer investment horizon. Ted Jenkin, a certified financial planner, suggested that millennials, investing for the long term, should be willing to take more risks by allocating more to stocks. 

HSBC Asset Management, in December 2023, noted that global markets are experiencing a “new paradigm” due to fragmentation of the global order, with increased recession risk leading to a resurgence in bond investments. In its 2024 investment outlook, HSBC anticipates tight monetary and credit conditions posing challenges for global economies, potentially resulting in an unexpected growth shock next year. They predict that US inflation will decline to the Federal Reserve’s 2% target by late 2024 or early 2025, with other major economies following suit. The analysts expect the Fed to start cutting rates in the second quarter of 2024, surpassing market expectations, while also foreseeing rate cuts by the European Central Bank and the Bank of England, albeit with some lag. Joseph Little, HSBC Global Chief Strategist, commented

“Nevertheless, headwinds are beginning to build. We believe further disinflation is likely to come at the price of rising unemployment, while depleting consumer savings, tighter credit conditions, and weak labour market conditions could point to a possible recession in 2024.” 

HSBC observed that markets currently anticipate a “soft landing,” expecting major central banks to bring inflation back to target without causing economic downturns. However, HSBC expressed concern that the heightened risk of recession is being underestimated. Accordingly, they are adopting a defensive growth stance, aligning with the prevailing notion that bonds are becoming more attractive. Specifically, they are cautious about US stocks due to elevated earnings growth expectations for 2024 and stretched market multiples compared to government bond markets. According to Joseph Little:

“A weaker global economy and slowing inflation are likely to present a supportive environment for government bonds and challenging conditions for equities. Therefore, we see selective opportunities in parts of global fixed income, including the U.S. Treasury curve, parts of core European bond markets, investment grade credits, and securitised credits.”

Investor sentiment regarding intermediate-term Treasury bonds appears to be shifting, according to David Botset of Schwab Asset Management. More investors are reallocating their fixed-income portfolios towards bonds with maturities typically ranging from three to five years, and sometimes up to 10 years. This adjustment reflects the belief that interest rates may have peaked, prompting investors to position themselves for potential rate decreases by the Federal Reserve, which could occur as early as this year. Botset suggests that intermediate-term bonds offer both income and potential price appreciation when rates decline. 

In 2023, the global economy and financial markets underwent a transition marked by diminishing extreme inflation concerns, shifting focus towards slowing growth and expectations of rate cuts. This led to volatility, including a spike in bond yields, with the 10-year US Treasury yield briefly reaching 5%, driven by technical factors rather than fundamental ones. However, by November, market sentiment began to shift as sidelined cash flowed back in, driving yields down and prices up. This rally is expected to continue in 2024, as key central bank rates and bond yields globally remain high and are likely to stay elevated before declining. There is minimal expectation for higher policy rates, with a greater likelihood of rate decreases. In the US, inflation, although declining, remains above the Federal Reserve’s target, keeping rates elevated until the second half of 2024. The Fed’s rate-hiking cycle is likely complete, with a pause expected until inflation approaches 2%. Despite recent rallies, US Treasury yields remain attractive. For bond investors, this environment presents nearly ideal conditions. The majority of a bond’s return comes from its yield, and falling yields, anticipated in late 2024, increase bond prices. Investors should consider extending duration to capture these rate movements.

Deutsche Bank Wealth Management anticipates mid- to high-single-digit percentage growth in most global bond markets throughout 2024. Corporate bonds are expected to be more appealing than government bonds due to their higher yield and strong fundamentals. Investment grade bonds are particularly attractive, offering attractive real yields and low default rates. In contrast, high-yield bonds pose higher risks due to their lower credit rating, especially in an environment of weaker economic data and increasing insolvency rates. Many investors may view high-yield bonds as niche investments only.

Some of the best bond ETFs to buy include SPDR Portfolio High Yield Bond ETF (NYSE:SPHY), iShares 0-5 Year TIPS Bond ETF (NYSE:STIP), and SPDR Portfolio Corporate Bond ETF (NYSE:SPBO). 

Our Methodology 

We curated our list of the best bond ETFs by choosing consensus picks from multiple credible websites. We have mentioned the 5-year share price returns of each ETF as of March 16, 2024, ranking the list in ascending order of the share returns. 

Best Bond ETFs To Buy

12. iShares Core International Aggregate Bond ETF (CBOE:IAGG)

5-Year Share Price Returns as of March 16: 4.75%

iShares Core International Aggregate Bond ETF (CBOE:IAGG) aims to mirror the performance of the Bloomberg Global Aggregate ex USD 10% Issuer Capped (Hedged) Index, consisting of non-U.S. dollar denominated investment-grade bonds. This ETF provides an affordable and straightforward way to access international bonds within one fund, enhancing diversification in fixed income investments. It aims to minimize the impact of currency fluctuations against the US dollar. iShares Core International Aggregate Bond ETF (CBOE:IAGG) has an expense ratio of 0.07% and net assets of $5.72 billion as of March 15, 2024, along with a portfolio holding 5,114 securities. The fund was established on November 30, 2015. 

Like SPDR Portfolio High Yield Bond ETF (NYSE:SPHY), iShares 0-5 Year TIPS Bond ETF (NYSE:STIP), and SPDR Portfolio Corporate Bond ETF (NYSE:SPBO), iShares Core International Aggregate Bond ETF (CBOE:IAGG) is one of the best bond ETFs to buy. 

11. iShares Aaa – A Rated Corporate Bond ETF (NYSE:QLTA)

5-Year Share Price Returns as of March 16: 5.03%

iShares Aaa – A Rated Corporate Bond ETF (NYSE:QLTA) aims to replicate the performance of the Bloomberg U.S. Corporate Aaa – A Capped Index, which consists of Aaa to A rated fixed-rate US dollar-denominated bonds issued by both US and non-US corporations. iShares Aaa – A Rated Corporate Bond ETF (NYSE:QLTA) offers an expense ratio of 0.15% and holds net assets totaling $1 billion as of March 15, 2024, with a portfolio comprising 2,945 securities. The fund was established on February 14, 2012.

10. iShares 10+ Year Investment Grade Corporate Bond ETF (NYSE:IGLB)

5-Year Share Price Returns as of March 16: 5.62%

iShares 10+ Year Investment Grade Corporate Bond ETF (NYSE:IGLB) aims to mirror the performance of the ICE BofA 10+ Year US Corporate Index, comprising US dollar-denominated investment-grade corporate bonds with maturities exceeding ten years. As of March 15, 2024, iShares 10+ Year Investment Grade Corporate Bond ETF (NYSE:IGLB) holds net assets totaling $2.16 billion, with an expense ratio of 0.04%. It maintains a portfolio of 3,597 securities and was established on December 8, 2009. iShares 10+ Year Investment Grade Corporate Bond ETF (NYSE:IGLB) is one of the best bond ETFs to buy. 

9. SPDR Portfolio Long Term Corporate Bond ETF (NYSE:SPLB)

5-Year Share Price Returns as of March 16: 5.64%

SPDR Portfolio Long Term Corporate Bond ETF (NYSE:SPLB) ranks 9th on our list of the best bond ETFs. SPDR Portfolio Long Term Corporate Bond ETF (NYSE:SPLB) aims to replicate the performance of the Bloomberg Long U.S. Corporate Index, offering low-cost, broad exposure to US corporate bonds with maturities exceeding ten years. The index comprises investment-grade, fixed-rate, US dollar-denominated debt with at least $300 million in outstanding par value, and it is market-cap weighted. With assets under management totaling $763.79 million and a portfolio holding 2,823 securities, SPDR Portfolio Long Term Corporate Bond ETF (NYSE:SPLB) features an expense ratio of 0.04%. The fund was established on March 10, 2009.

8. Vanguard Long-Term Corporate Bond Index Fund ETF Shares (NASDAQ:VCLT)

5-Year Share Price Returns as of March 16: 5.67%

Vanguard Long-Term Corporate Bond Index Fund ETF Shares (NASDAQ:VCLT) aims to generate a consistent and substantial level of current income by primarily investing in high-quality, investment-grade corporate bonds. Its benchmark indices are the Bloomberg U.S. 10+ Year Corporate Bond Index and Bloomberg U.S. Aggregate Bond Index. As of December 22, 2023, the fund features an expense ratio of 0.04%. With net assets amounting to $7.6 billion as of February 29, 2024, Vanguard Long-Term Corporate Bond Index Fund ETF Shares (NASDAQ:VCLT)’s portfolio comprises 2,872 bonds. It is one of the best bond ETFs to buy. 

7. Vanguard Intermediate-Term Corporate Bond Index Fund ETF Shares (NASDAQ:VCIT)

5-Year Share Price Returns as of March 16: 9.26%

Vanguard Intermediate-Term Corporate Bond Index Fund ETF Shares (NASDAQ:VCIT) aims to deliver a steady and sustainable level of current income by predominantly investing in high-quality, investment-grade corporate bonds. With a moderate level of interest rate risk, the ETF maintains a dollar-weighted average maturity ranging from 5 to 10 years. Featuring an expense ratio of 0.04%, the ETF’s portfolio consists of 2,142 bonds. As of February 29, 2024, Vanguard Intermediate-Term Corporate Bond Index Fund ETF Shares (NASDAQ:VCIT) holds net assets worth $47.3 billion. The fund was established on November 19, 2009. It is one of the best bond ETFs to invest in. 

6. iShares National Muni Bond ETF (NYSE:MUB)

5-Year Share Price Returns as of March 16: 9.33%

iShares National Muni Bond ETF (NYSE:MUB) ranks 6th on our list of the best bond ETFs to monitor. The fund aims to replicate the performance of the ICE AMT-Free US National Municipal Index, which consists of investment-grade US municipal bonds. This ETF offers convenient access to over 2,000 municipal bonds within one fund. As of March 15, 2024, iShares National Muni Bond ETF (NYSE:MUB) holds net assets totaling $36.8 billion, with an expense ratio of 0.05%. It maintains a portfolio of 5,631 bonds, providing investors with diversified exposure to the U.S. municipal bond market. 

In addition to SPDR Portfolio High Yield Bond ETF (NYSE:SPHY), iShares 0-5 Year TIPS Bond ETF (NYSE:STIP), and SPDR Portfolio Corporate Bond ETF (NYSE:SPBO), iShares National Muni Bond ETF (NYSE:MUB) is one of the best bond ETFs to buy.

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Disclosure: None. 12 Best Bond ETFs To Buy is originally published on Insider Monkey.

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