The universe of bond ETFs is expanding rapidly, creating new opportunities for the discerning investor and – for those just taking an interest in bonds – the myriad of options can be overwhelming.

The Top ETFs for the Bond Market’s Major Sectors

Bonds are a big asset class. Just within the US, there are short and long-dated Treasury bonds, corporate bonds across a range of credit ratings, inflation-protected securities, and a variety of structured products like US mortgage-backed securities.

Conveniently, the universe of bond ETFs has expanded to the point where an investor who knows exactly what they want can usually find it. But if you have only recently heard that it might be a good time to get some more bond exposure, where do you start?

Below you will find short lists of the top ETFs in the most common sectors of the bond market. All of them are passive funds that aim to track a well-known bond benchmark, and all are large, liquid, funds from reputable providers. And, like so many ETFs, their fees range but are typically among the most cost-effective ways to gain exposure to the asset class. Nevertheless, please note that the summary below is intended to lay out the major fixed-income asset classes with example ETFs for each, but our selection should not be construed as an investment recommendation or investment advice.

US Treasury ETFs: Income Opportunity with High Interest-Rate Sensitivity

US Treasuries are often referred to as “risk-free” investments. While this originates in the view the U.S. government will never default, the current debate over the debt ceiling highlights the possibility. Notwithstanding this concern, a US-Treasury ETF offers both income and substantial exposure to the direction of interest rates.

Long-Maturity Treasuries: Income and Significant Interest-Rate Exposure

A case can be made that interest rates may be near their cyclical peak and thus owning Treasury bonds could offer the potential for significant future capital gains. If that is your view, a longer-maturity bond ETF may be right for you.

Top Longer-Maturity Treasury ETFs

Notes: Fund data is recent as of publication date but is subject to change. AUM is Assets Under Management, and all figures are current approximations.

Short-Maturity Treasuries: Higher-Yielding Cash with Less Interest-Rate Exposure

Short-duration bond ETFs tend to favor bonds that mature within a year or two. So even when there is a lot of uncertainty about the US Federal Reserve’s (Fed) plan for interest rates, these funds tend to be less volatile as the bonds can simply be held to maturity. That makes them a compelling choice for investors wanting to withdraw their money in the next few years.

Top Shorter-Maturity Treasury ETFs

Notes: Fund data is recent as of publication date but is subject to change. AUM is Assets Under Management, and all figures are current approximations.

Floating-rate Treasuries: Yield Without the Interest Rate Sensitivity

While most investors instinctually feel that rising interest rates are bad for bonds, the opposite is generally true with floating-rate bonds. These securities do not have a “fixed” interest rate like traditional Treasury bonds. Instead, they pay a yield that “floats” over a benchmark, such as the Fed’s short-term policy rate. As such, when the Fed raises its benchmark rate, the interest paid on a floating-rate security linked to it goes up.

Top Floating-Rate Treasury ETFs

Notes: Fund data is recent as of publication date but is subject to change. AUM is Assets Under Management, and all figures are current approximations.

Corporate Bond ETFs

While corporate bonds offer a yield premium over comparable maturity Treasury bonds, that yield comes with a corresponding decrease in credit quality. (The number of US corporate bonds rated in line with the US Government can be counted on one hand). But there are large markets in both investment-grade corporate bonds and sub-investment-grade, or high-yield, corporate bonds.

Investment-Grade Corporate Bonds

Blackrock’s LQD is the industry leader in investment-grade corporates, and its closest competitor, Vanguard’s VCLT, focuses on the more volatile longer-maturity (10-year and greater) segment of the market. As there is little else to compete with either of these funds, we included a medium-maturity bond fund (also from Blackrock) targeting the 5–10-year segment of the market and a short-maturity fund, targeting the 1–5-year segment, for investors eager to trade a bit more credit and interest-rate exposure for higher yields than they might find in a cash or short-maturity Treasury fund.

Top Corporate Bond ETFs

Notes: Fund data is recent as of publication date but is subject to change. AUM is Assets Under Management, and all figures are current approximations.

Sub-Investment Grade Corporate Bond ETFs

Sub-investment grade corporates, or “High Yield” bonds as they are more commonly known, have greater sensitivity to the economic cycle and thus offer commensurately higher returns. Once again, Blackrock leads the pack amongst high-yield bond ETFs with its HYG fund almost double the size of the next largest competitor, State Street’s JNK fund. As such, our third high-yield fund is another shorter-maturity fund for investors hungry for the yield but seeking a bit less credit and interest-rate risk.

Top High-Yield ETFs

Notes: Fund data is recent as of publication date but is subject to change. AUM is Assets Under Management, and all figures are current approximations.

Floating-Rate Corporate Bonds: Extra Yield Without the Interest-Rate Risk

Like floating-rate Treasury funds, these ETFs invest in floating-rate corporate debt. The first two track a standard investment-grade (floating) corporate bond index while the third invests in only AAA-rated Collateralized Loan Obligations (CLOs), which are themselves portfolios of high-yield corporate loans.

Top Floating-Rate Corporate ETFs

Notes: Fund data is recent as of publication date but is subject to change. AUM is Assets Under Management, and all figures are current approximations.

Sub-Investment Grade Government Exposure: Emerging Markets ETFs

The three funds listed below all invest in US-dollar denominated debt issued by emerging market (EM) governments. As these borrowers are, by definition, below investment grade, their bonds pay a higher yield than their developed country counterparts. While there are also funds that invest in government bonds issued in the local currency of these emerging markets, (such as EMLC), these investments add currency risk on top of their credit risk, so we did not include them here.

Top Emerging Market US-Dollar Government Bond ETFs

Notes: Fund data is recent as of publication date but is subject to change. AUM is Assets Under Management, and all figures are current approximations.

Aggregate Bond ETFs: Tracking a More Diverse Benchmark

The Bloomberg US Aggregate Bond Index is an industry standard benchmark of US government bonds, investment-grade corporate bonds, and mortgage-backed securities. While the interest-rate risk of the benchmark is relatively high, it provides a fair representation of the overall bond market – which helps explain these ETFs enormous size and (relatively) low cost.

Top Aggregate Bond ETFs

Notes: Fund data is recent as of publication date but is subject to change. AUM is Assets Under Management, and all figures are current approximations.

Final Thoughts

While there may be a healthy debate about the best time to buy more bonds, there is little debate about the value of holding bonds in a diversified portfolio. For those comfortable making their own asset allocation decisions, the ETFs we have listed above provide convenient, liquid, and relatively inexpensive exposure to the major bond sectors.

Nevertheless, we encourage our readers to do more of their own research. If investing was easy, everybody would do it. Because it is not, we strongly encourage you to use the information we have provided above as a tool and to supplement it with additional information, including looking at historical price graphs of the different ETFs to help gauge their volatility across economic and credit cycles.

Please let us know in the comments below if you found this article helpful, have questions, or want to suggest improvements. Thank you.