The Best Bond ETFs to Buy

Bond ETFs are useful in a diversified portfolio, but investors should be aware of interest rate sensitivity, credit quality, liquidity, and tax efficiency.

the word bonds written on wooden blocks set atop financial papers
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Many investors are still cautious about fixed income after the 2022 bond bear market. That year, aggressive rate hikes from the Federal Reserve caused prices on many bond ETFs to plunge, especially those with longer maturities. The memory of bonds falling alongside stocks left a mark.

Still, ETF issuers remain confident about the future of bond ETFs. In fact, fixed income is one of the fastest-growing categories.

According to ETF Central, there are now 881 bond ETFs trading in the U.S., and the aggregate bond segment alone has attracted more than $64 billion in net inflows over the past year as of August 2025.

Aggregate bond ETFs offer a broad, one-size-fits-all strategy and are highly popular with passive investors.

But the real benefit of bond ETFs is how customizable they've become. Whether you want to target specific maturities, credit ratings, or even tax treatments, you can likely find a bond ETF for it.

Here's a guide on how to narrow down your choices to the best bond ETFs to buy.

How to pick the best bond ETFs

When choosing a bond ETF, it helps to think in terms of two adjustable levers. These levers affect both the risk you take and the return you might earn. While you can customize each, they work within a trade-off framework. Pushing one side generally means pulling away from something else.

The first lever is duration. This is expressed in years and measures how sensitive a bond ETF is to changes in interest rates. Bond prices move in the opposite direction of interest rates.

For example, a bond ETF with a 15-year average duration would all else being equal, drop more than one with a 4-year duration when rates climb. The same logic works in reverse when rates fall. Duration can range from less than a year for ultra-short products that mimic money market funds to more than 25 years for long-term bond ETFs that can be almost as volatile as stocks.

The second lever is credit quality. Think of a bond ETF as a giant pool of loans made to various borrowers. If one of those borrowers seems less trustworthy, investors demand a higher yield to take on the added risk. Credit ratings help gauge this trust.

For example, a bond rated BBB or higher is considered investment grade, while anything below that is categorized as high-yield or junk. As credit quality increases, the yield typically drops, but the ETF becomes more stable. Lower credit quality tends to offer more yield but also more risk of default or price volatility.

Once you understand these two levers, you can better match a bond ETF to your goals, time horizon and risk tolerance. Consider two examples:

  • A short-term investor nearing retirement may prefer an ETF with short duration and high credit quality, minimizing both rate sensitivity and default risk.
  • An investor with a medium-term horizon who can stomach more volatility might choose intermediate duration and lower credit quality for higher income potential.

You can also mix and match these attributes in many ways: short-term high yield, long-term investment grade, or anything in between. That’s why relying solely on aggregate bond ETFs may miss the broader opportunities available.

A third factor to keep in mind is tax efficiency. Most bond ETFs distribute interest income that is taxed as ordinary income, which can be a drag if you’re investing outside a tax-sheltered account like a 401(k) or IRA. In these cases, tax efficiency becomes essential.

Certain bond ETFs help here. U.S. Treasury-only bond ETFs are exempt from state taxes. Municipal bond ETFs are generally exempt from federal taxes, and state-specific muni ETFs may also offer state tax exemptions if you live in the same state.

These are the foundational ideas. As you grow more comfortable, you’ll come across more advanced bond strategies, including:

  • Senior loan ETFs, which invest in floating-rate loans and tend to do well when rates rise.
  • Collateralized loan obligations (CLOs), which pool loans into tranches with varying levels of risk and return.
  • Treasury inflation-protected securities (TIPS), which adjust payouts with inflation.

While these can play a role, most investors are best served by mastering the basic duration and credit quality combinations before exploring the more complex fixed income categories.

Tony started investing during the 2017 marijuana stock bubble. After incurring some hilarious losses on various poor stock picks, he now adheres to Bogleheads-style passive investing strategies using index ETFs. Tony graduated in 2023 from Columbia University with a Master's degree in risk management. He holds the Certified ETF Advisor (CETF®) designation from The ETF Institute. Tony's work has also appeared in U.S. News & World Report, USA Today, ETF Central, The Motley Fool, TheStreet, and Benzinga. He is the founder of ETF Portfolio Blueprint.