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5 Best Bond ETFs to Buy for Q1 2025
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The go-to investment instruments in times of great uncertainty are bonds. They don’t make exciting price rallies and aren’t as volatile as stocks, but they provide safe and steady income. To reduce the investment risk further, instead of investing in individual bonds, investors go for bond ETFs (exchange-traded funds).
What are the top bonds ETFs to buy?
Copy link to sectionThese are the best bond ETFs to buy in 2025. They will help you reduce the portfolio risk profile while providing steady returns.
| # | ETF symbol | ETF name | Learn more |
|---|---|---|---|
| 1 | AGG | iShares Core US Aggregate Bond ETF | Learn more > |
| 2 | TLT | iShares 20+ Year Treasury Bond ETF | Learn more > |
| 3 | VCSH | Vanguard Short-Term Corporate Bond ETF | Learn more > |
| 4 | SGOV | iShares 0-3 Month Treasury Bond ETF | Learn more > |
| 5 | EMB | iShares J.P. Morgan USD Emerging Markets Bond ETF | Learn more > |
1. iShares Core US Aggregate Bond ETF (NYSEARCA: AGG)
Copy link to section- Current price: $96.62
- AUM: $108.87 billion
- Annual expense ratio: 0.03%
- YTD performance: -2.3%
- Annual dividend yield: 3.42%
The iShares Core US Aggregate Bond ETF offers investors broad exposure to the U.S. investment-grade bond market. Managed by BlackRock’s iShares, AGG aims to track the Bloomberg US Aggregate Bond Index.
This ETF includes a diverse mix of U.S. Treasuries, mortgage-backed securities (MBS), and corporate bonds, making it a versatile option for fixed-income investors seeking to build a balanced long-term portfolio.
AGG’s low expense ratio of just 0.03% makes it one of the most cost-effective ways to gain exposure to a wide array of U.S. bonds. Despite a challenging year for bonds, reflected in AGG’s year-to-date performance of -2.3%, the ETF continues to offer a stable annual dividend yield of 3.42%, providing a reliable income stream in uncertain markets.
Notably, AGG’s heavy weighting in U.S. Treasuries, which constitute 72.5% of the fund, underscores its role as a safe haven in volatile times. While the ETF’s yield may seem modest due to bonds bought during periods of zero interest rate policy (ZIRP), these are gradually maturing and being replaced with higher-yielding securities. This transition is likely to enhance AGG’s distributions in the coming years.
2. iShares 20+ Year Treasury Bond ETF (NASDAQ: TLT)
Copy link to section- Current price: $90.89
- AUM: $49.08 billion
- Annual expense ratio: 0.15%
- YTD performance: -7.55%
- Annual dividend yield: 3.87%
The iShares 20+ Year Treasury Bond ETF is an attractive option for investors seeking exposure to long-term U.S. Treasury bonds. Managed by BlackRock’s iShares, this ETF tracks the ICE U.S. Treasury 20+ Year Bond Index.
TLT is particularly appealing for those looking to extend their portfolio’s duration and capitalize on long-term interest rate trends. Its holdings primarily consist of U.S. government debt with maturities exceeding 20 years, making it a reliable choice for those aiming for lower credit risk.
Despite a challenging year marked by inflation concerns and fluctuating interest rates, TLT maintains a stable annual dividend yield of 3.87%. This ETF’s long-term focus helps it capture the benefits of extended duration bonds, which can offer higher yields and potential capital appreciation during periods of declining interest rates.
However, investors should be aware of the higher interest rate sensitivity associated with long-term bonds, which can lead to significant price volatility.
TLT’s cost efficiency and impressive liquidity make it a standout in the government bonds category. With a low expense ratio of 0.15%, it offers cost-effective access to a diverse portfolio of long-dated Treasuries. This ETF is ideal for those looking to hedge against equity market volatility or enhance income through a dedicated allocation to long-term U.S. Treasury securities.
3. Vanguard Short-Term Corporate Bond ETF (NASDAQ: VCSH)
Copy link to section- Current price: $76.92
- AUM: $33.99 billion
- Annual expense ratio: 0.04%
- YTD performance: -0.34%
- Annual dividend yield: 3.52%
For those seeking a blend of stability and income, the Vanguard Short-Term Corporate Bond ETF is a noteworthy choice. It targets short-term, high-quality corporate bonds, ensuring lower interest rate sensitivity. By tracking the Bloomberg U.S. 1–5 Year Corporate Bond Index, VCSH aims to provide steady income with minimal price volatility.
VCSH’s portfolio is composed of over 2,500 bonds, predominantly from the industrial, utility, and financial sectors. The ETF is heavily diversified, with no single holding exceeding 0.24% of the total assets. Holdings such as Boeing, Bank of America, and CVS Health diversify risk, ensuring that no single issuer can significantly impact the fund’s performance.
One of VCSH’s key strengths lies in its low cost, with an expense ratio of just 0.04%. Despite a slight year-to-date decline, the fund remains appealing due to its stable annual dividend yield of 3.52%.
This combination of low costs, high-quality holdings, and modest yield makes VCSH an attractive option for those looking to enhance their fixed-income portfolio without taking on excessive risk.
4. iShares 0-3 Month Treasury Bond ETF (NYSEARCA: SGOV)
Copy link to section- Current price: $100.44
- AUM: $22.19 billion
- Annual expense ratio: 0.07%
- YTD performance: 0.14%
- Annual dividend yield: 5.19%
Offering specialized exposure, the iShares 0-3 Month Treasury Bond ETF, managed by BlackRock’s iShares, strategically selects U.S. Treasury securities with maturities of three months or less. SGOV follows the ICE 0-3 Month US Treasury Securities Index, presenting a low-risk, short-duration investment opportunity. This fund aims to minimize interest rate risk while providing a consistent income stream.
SGOV’s appeal lies in its simplicity and safety, ideal for investors looking to park cash while earning a respectable yield. With an annual expense ratio of 0.07%, it remains a cost-effective choice for income generation.
The ETF’s performance has remained steady, with a modest year-to-date increase of 0.14%, reflecting its role as a reliable cash-equivalent holding in a diversified portfolio.
The fund’s monthly rebalancing ensures continuous exposure to the freshest short-term Treasury bills, capitalizing on the prevailing higher-for-longer interest rate environment.
With an annual dividend yield of 5.19%, SGOV stands out as an attractive income vehicle. This ETF is particularly beneficial for investors seeking stability and liquidity without compromising on yield, making it a prudent choice amidst uncertain economic conditions.
5. iShares J.P. Morgan USD Emerging Markets Bond ETF (NASDAQ: EMB)
Copy link to section- Current price: $88.46
- AUM: $14.84 billion
- Annual expense ratio: 0.39%
- YTD performance: 0.32%
- Annual dividend yield: 4.87%
The iShares J.P. Morgan USD Emerging Markets Bond ETF stands out as a unique option for investors seeking exposure to emerging market debt denominated in U.S. dollars. With an expense ratio of 0.39%, EMB offers a cost-effective way to access a diverse portfolio of U.S. dollar-denominated government bonds issued by emerging market countries.
Unlike other emerging market bond ETFs, EMB provides exposure to geographies that are not as susceptible to the risks associated with exchange rate fluctuations and U.S. stagflation.
Many of these economies are effectively dollarized due to their heavy weighting towards commodities and fixed-rate regimes. Consequently, typical FX risks concerning emerging market financials do not apply as much to EMB’s holdings.
EMB’s portfolio breakdown reveals a significant allocation to Gulf Nations, China, Turkey, Indonesia, and South America. These geographies offer a blend of stability and growth potential, with exposures to commodity-intensive economies and positive trends such as the renewable energy transition.
Despite potential challenges like currency weakening and political factors, EMB’s diversified holdings and relatively low debt levels mitigate risks associated with carry trade pressures and inflation.
With an annual dividend yield of 4.87%, EMB presents an attractive option for income-seeking investors looking to add geographical diversification to their fixed-income portfolio.
Where to buy the best bonds ETFs
Copy link to sectionThe easiest way to become part of the bond ETF market is through a broker; either a traditional broker-dealer or an online broker. An online broker is best because you’ll have all the bond ETF varieties under one platform and access to your portfolio 24/7. We have found the best brokers for bond ETFs.
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Invest in bond ETFs in 3 Steps
Copy link to section- Open a trading account: choose a broker and open a trading account with them. Activate your new account through the link sent to your email as filled and deposit money into the new trading account.
- Choose small-cap ETFs: choose whether to invest in bond ETFs or trade them via CFDs. You can also do both.
- Start trading: screen the available bond ETFs to see which ones match your investing and trading strategies and open a trade.
What are bonds ETFs?
Copy link to sectionA bond ETF, or bond exchange traded fund, is a type of ETF that invests in various types of fixed income securities like government, corporate, and municipal bonds. It allows investors to gain diversified exposure to bond markets in a single fund that trades intraday like stocks.
Bond ETFs hold a portfolio of hundreds or thousands of individual debt instruments and provide returns based on the underlying bonds’ interest payments and price movements. They offer a low-cost way to invest in bonds across sectors, credit quality, and maturities. Bonds are broadly divided into two categories:
- Government Bonds are bonds issued by the government through the Federal Reserve (in the USA), municipalities, or government agencies.
- Corporate Bonds are bonds issued by individual organisations. The issuing organisation’s credit rating determines how attractive the bonds are, ranging from high yield bonds that have a risk of default to investment-grade corporate bonds issued by established organisations with excellent credit ratings.
Even though bond ETFs are the safest investment instruments for a steady income, investing in bond ETFs blindly without understanding how bonds work will lead to money loss. The primary factor affecting bond ETF prices and yields are interest rates: they are inversely correlated. When interest rate rises, bond ETFs fall, and vice versa.
In the wake of the coronavirus pandemic, global economies put a cap rate on interest rates, to help ensure the survival of economically viable companies. Interest rates are expected to be maintained at low levels, effectively reducing borrowing costs to spur economic recovery, which would result in a continued increase in the value of bond ETFs for the foreseeable future.
Are bonds ETFs a good investment?
Copy link to sectionA bond ETF can be an excellent addition to an investment portfolio due to benefits like instant diversification, low costs, and tax efficiency. Investing a portion in bond ETFs provides stability and income to balance more volatile equities.
The best bond ETFs allow participation in global bond markets while minimising the impact of individual defaults. Bond ETFs offer varying risk and return profiles from safe government and short term bonds to high yield corporate debt. Core bond ETFs like AGG and BND track broad benchmarks and are suitable core holdings.
Bond ETFs are low-risk investments, but interest rates play a critical role in their evaluation and price movement. It is, therefore, prudent to always estimate the fundamentals of interest rates.
Methodology: How we choose the best bond ETFs
Copy link to sectionAt Invezz, we are dedicated to helping investors make informed decisions by providing authoritative, accessible, and engaging advice and recommendations. Our curated section of the best Exchange-Traded Funds (ETFs) is carefully selected by our team of experienced market analysts and reviewed by a sub-editor. This methodology outlines the rigorous process we follow to ensure our ETF recommendations are up-to-date, reliable, and insightful.
- Analyst research & recommendations: Our seasoned market analysts use their in-depth sector knowledge to identify ETFs with strong potential, ensuring they meet high standards of performance, liquidity, and market potential.
- ETF evaluation: We evaluate ETFs based on their underlying assets, historical performance, expense ratios, and tracking accuracy, alongside macroeconomic factors and sector trends.
- Fund performance reports: We assess ETFs through the latest performance reports, analyzing key metrics like returns, volatility, expense ratios, and assets under management (AUM).
- Sector analysis and external recommendations: Our detailed sector analysis, combined with recommendations from reputable sources like Barron’s and Zacks, provides an additional layer of validation for our selections.
- Quarterly review & refresh: We update our curated ETF list quarterly, re-evaluating each ETF based on the latest reports, industry developments, and market conditions to ensure our recommendations reflect the most current information available.