The Best Vanguard Bond Funds to Buy
Investors seeking the best Vanguard bond funds can pick between mutual funds and ETFs spanning maturities, credit qualities, tax treatment and geographies.
You might recognize Vanguard for its wide lineup of low-cost equity index funds and the lasting legacy of its late founder and chairman, John Bogle. Less appreciated is that The Vanguard Group, which Bogle founded in May 1975, has also been a major force in bond investing for decades.
That presence dates back to 1986. Fresh off the launch of its first stock fund, Vanguard introduced the Vanguard Total Bond Market Index Fund (VBTLX). At the time, this was a meaningful shift.
For individual investors, buying bonds typically meant going through a Wall Street bond desk or working with a financial adviser. Pricing was opaque because most bonds trade over the counter, and even placing an order was cumbersome.
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The math behind bond pricing, yield calculations and duration also created a steep learning curve for retail investors.
Vanguard's solution was to bundle thousands of investment-grade bonds into a single fund. The portfolio included U.S. Treasury bonds, agency mortgage-backed securities and corporate bonds, with exposure spread across short, intermediate and long maturities.
Instead of navigating individual bond trades, investors could gain diversified fixed-income exposure in a low-cost, liquid and accessible format.
Fast forward to today and the Vanguard Total Bond Market strategy is still around, now offered in multiple share classes and at lower costs than ever. More importantly, it represents just one piece of a much broader fixed-income lineup.
Investors who prefer to stay within Vanguard's ecosystem can build a complete bond allocation using its mutual funds and ETFs, without needing to look elsewhere.
Here's what you need to know when choosing the best Vanguard bond funds.
The buyer's guide to Vanguard bond funds
According to Vanguard's built-in mutual fund and ETF screener, out of roughly 370 total funds, 128 are classified as "fixed income." Choosing between them comes down to three core considerations.
First is your risk tolerance. This refers to how much day-to-day market volatility you can handle and, more importantly, how deep of a drawdown you can tolerate and for how long.
Bonds are often viewed as a stabilizing force, but that does not mean they are immune to losses. Being honest about how much volatility and downside you can withstand is essential before selecting a bond fund.
Second is your time horizon. Bond maturity should generally align with when you expect to need the money. If you are investing for the long term, longer-maturity bond funds may make sense.
If the goal is shorter-term, such as saving for a home down payment or an upcoming tuition bill, shorter-term bond funds are usually more appropriate because they are less sensitive to interest rates.
Third is your investment objective. Some investors use bonds primarily to balance a portfolio and reduce overall volatility. Others prioritize income. This distinction helps determine the right credit quality.
High-quality Treasury or investment-grade bond funds are typically better for stability, while high-yield corporate bond funds, or junk bunds, can provide more income but come with higher credit risk.
Vanguard's screener makes this process straightforward. Investors can filter funds by credit quality, ranging from high to low, and by maturity, from short to long.
These two levers form the foundation for selecting the right bond fund.
There are also some practical details to understand, starting with the fact that many Vanguard bond strategies are available as both mutual funds and ETFs.
This structural flexibility stems from a now-expired Vanguard patent that allowed certain mutual funds to offer ETF share classes, improving tax efficiency and accessibility.
Mutual funds typically come in "investor shares" and "admiral shares" versions.
Investor shares usually have higher expense ratios but lower minimum investments, while admiral shares offer lower expense ratios with a typical $3,000 minimum investment requirement.
Another version, "institutional shares," is intended for use by pension funds, endowments and insurance companies.
Vanguard's bond ETFs, by contrast, require only the price of a single share, or less if your brokerage supports fractional shares.
Bond ETFs trade throughout the day, like stocks, while bond mutual fund orders settle once daily at net asset value.
Regardless of structure, Vanguard bond funds generally pay monthly distributions.
Although individual bonds usually pay interest semi-annually, bond funds pool those payments and distribute them monthly, which can make income more predictable for investors.
How we picked the best Vanguard bond funds
Picking the right bond fund from a lineup of 128 options is very much a your-mileage-may-vary decision. What works well for one investor may not work for another.
A retiree may prioritize a Vanguard bond fund focused on high-quality U.S. Treasuries to preserve capital.
A younger investor may be more willing to accept lower credit quality in exchange for higher income.
Others may simply want the lowest-cost, most diversified option available.
With that in mind, we selected five Vanguard bond funds that each serve a distinct purpose rather than trying to crown a single "best" option.
Each fund was chosen to represent one of the following categories: minimum fees; high safety; above-average yield; good tax efficiency; and maximum diversification.
Within each category, we limited our choices to funds with at least $1 billion in assets under management to ensure scale, liquidity and longevity.
We also applied a strict cost discipline. While Vanguard is known for low fees, differences still matter over time.
We capped the expense ratio at 0.25% annually, which translates to $25 a year in fee drag on a $10,000 investment.
For each fund, we highlight the key details investors need to evaluate suitability.
This includes the expense ratio, minimum investment requirements where applicable, the 30-day SEC yield and the availability of different share classes.
Vanguard Total Bond Market Index Fund Admiral Shares
- Dual share class: Yes (ETF)
- Expense ratio: 0.04% (0.03% for ETF)
- 30-day SEC yield: 4.13%
- Minimum investment: $3,000
Today, the Vanguard Total Bond Market Index Fund Admiral Shares (VBTLX) is available with a modern counterpart, the Vanguard Total Bond Market ETF (BND). Vanguard's first bond fund tracks the Bloomberg U.S. Aggregate Float Adjusted Index, a broad benchmark designed to represent most of the U.S. investment-grade bond market.
The portfolio spans corporate bonds, U.S. Treasuries, mortgage-backed securities and asset-backed securities across short, intermediate and long maturities.
Individual bond maturities range from about one year to more than 25 years. From a credit perspective, most holdings fall into AA, A and BBB ratings, alongside a large allocation to U.S. government bonds.
Because of this wide maturity mix, the fund's average duration sits at 5.8 years. That translates to moderate interest-rate sensitivity.
All else equal, a 1% rise in interest rates would be expected to reduce the fund's net asset value by about 5.8%, while a 1% decline in rates would have the opposite effect. Investors are currently compensated for taking that risk with a 4.13% 30-day SEC yield.
The 0.04% expense ratio makes VBTLX extremely affordable, even with the $3,000 minimum investment.
BND, meanwhile, carries a lower 0.03% expense ratio and trades at a market price of $74 per share, making it easier to access for new investors.
Learn more about VBTLX/BND at the Vanguard provider site.
Vanguard Short-Term Inflation-Protected Securities Index Fund Admiral Shares
- Dual share class: Yes (ETF)
- Expense ratio: 0.06% (0.03% for ETF)
- 30-day SEC yield: 1.43% (before inflation adjustment)
- Minimum investment: $3,000
Bond investors face two primary risks: credit risk and interest-rate risk. Credit risk shows up when lower-quality bonds lose value during economic stress. Longer-term bonds are much more exposed to rate changes, which is why long-duration bond funds suffered double-digit losses in 2022.
If your priority is safety, the Vanguard Short-Term Inflation Protected Securities Index Fund Admiral Shares (VTAPX) stands out. The fund holds Treasury Inflation-Protected Securities (TIPS).
TIPS' principal value rises when inflation increases. Their value falls when inflation declines. Because interest payments are calculated as a percentage of that inflation-adjusted principal, the size of the coupon payments also changes over time.
VTAPX further reduces risk by focusing on short-maturity TIPS. The fund's average duration is about 2.4 years, which limits sensitivity to interest-rate increases that often accompany higher inflation. That combination of government credit quality and short duration makes it more defensive.
The stated 1.43% 30-day SEC yield can look underwhelming at first glance, but it doesn't include the inflation adjustment to principal. Actual income can end up higher or lower depending on how inflation evolves, which is the entire point of holding TIPS as an inflation hedge rather than a pure income vehicle.
Like many Vanguard bond funds, VTAPX is also available as an ETF in the form of the Vanguard Short-Term Inflation Protected ETF (VTIP).
VTIP cuts the expense ratio in half to 0.03% and removes the $3,000 minimum investment. The ETF can be purchased for roughly $49 per share, making it more accessible for many investors.
Learn more about VTAPX/VTIP at the Vanguard provider site.
Vanguard High-Yield Corporate Fund Investor Shares
- Dual share class: Yes (Admiral Shares)
- Expense ratio: 0.22% (0.12% for Admiral Shares)
- 30-day SEC yield: 5.64%
- Minimum investment: $3,000 ($50,000 for Admiral Shares)
One of the most established principles in fixed-income investing is that higher credit risk is typically compensated with higher income.
Moving beyond U.S. Treasury bonds takes you to investment-grade corporate bonds. Moving one step further takes you to high-yield corporate bonds, often referred to as junk bonds. These are bonds with credit ratings below BBB.
Vanguard offers exposure to this segment through the Vanguard High-Yield Corporate Fund Investor Shares (VWEHX). The fund charges a 0.22% expense ratio with a $3,000 minimum investment. Investors with $50,000 available can access the Admiral Shares version VWEAX, which lowers the expense ratio to 0.12%.
This fund carries real risk. While it holds over 1,000 individual bonds, credit quality is firmly in speculative territory. More than half of the portfolio is rated BB, roughly another third is rated B, and a smaller portion is rated CCC or lower. During economic slowdowns, this part of the bond market can experience sharp drawdowns alongside equities.
That risk is reflected in the income. VWEHX is one of the highest-yielding bond funds in Vanguard's lineup, with a 5.64% 30-day SEC yield for the Investor Shares. The lower expense ratio of the Admiral Shares pushes the yield closer to 5.74%. This makes the fund appealing for income-focused investors who can tolerate volatility and potential credit losses.
However, tax efficiency is a drawback. Interest income from corporate bonds is fully taxable at both the federal and state level, making this fund better suited for tax-advantaged accounts such as Roth IRAs rather than taxable brokerage accounts.
Learn more about VWEHX/VWEAX at the Vanguard provider site.
Vanguard Tax-Exempt Bond Index Fund Admiral Shares
- Dual share class: Yes (ETF)
- Expense ratio: 0.07% (0.03% for ETF)
- 30-day SEC yield: 3.46% (before tax equivalent adjustment)
- Minimum investment: $3,000
For some investors, taxes matter just as much as yield, especially for those in higher income brackets.
As your taxable income rises, each additional dollar of interest income is taxed at a higher marginal rate. That makes fully taxable bond income less attractive in a brokerage account.
Municipal bond funds address this issue by providing income that is exempt from federal income tax and, in some cases, state taxes as well. For broad national exposure, it's hard to beat the Vanguard Tax-Exempt Bond Index Fund Admiral Shares (VTEAX).
The fund tracks the Standard & Poor's National AMT-Free Municipal Bond Index and holds investment-grade municipal bonds issued by states, cities, and public authorities.
While not risk-free, the fund maintains relatively strong credit quality. Most holdings are rated AA, with the remainder largely split between AAA and A, reflecting the essential nature of the underlying projects and the broad diversification across issuers.
The stated 3.46% 30-day SEC yield is exempt from federal income tax and the alternative minimum tax. That means investors should evaluate it using tax-equivalent yield, which estimates the taxable bond yield required, based on your tax bracket, to generate the same after-tax income as VTEAX would.
VTEAX is also available as an ETF. The Vanguard Tax-Exempt Bond ETF (VTEB) cuts the expense ratio to 0.03%, removes the $3,000 minimum investment and trades at roughly $50 per share, making it more accessible for smaller portfolios.
VTEB also reports a slightly higher 30-day SEC yield due to lower ongoing costs.
Learn more about VTEAX/VTEB at the Vanguard provider site.
Vanguard Total World Bond ETF
- Dual share class: No
- Expense ratio: 0.05%
- 30-day SEC yield: 4.09%
- Minimum investment: N/A
The Vanguard Total World Bond ETF (BNDW) is arguably Vanguard's most diversified bond fund. The low-cost ETF tracks the Bloomberg Global Aggregate Float Adjusted Composite Index.
This benchmark spans more than 18,000 bonds worldwide, covering government and investment-grade corporate debt across U.S. and international markets, including both developed and emerging economies. The fund currently offers a 4.09% 30-day SEC yield.
BNDW is structured as an ETF of ETFs, allocating roughly half of its assets to BND and the other half to the Vanguard Total International Bond ETF (BNDX). While investors could replicate this mix themselves, BNDW packages it into a single, highly efficient vehicle at minimal cost.
One important detail is that BNDX is currency-hedged, since its underlying bonds are issued in foreign currencies while the ETF trades in U.S. dollars.
This hedging reduces the impact of currency fluctuations, so returns are driven primarily by bond performance rather than movements in foreign exchange rates.
Learn more about BNDW at the Vanguard provider site.
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