Bond ETFs Are Back: 3 Options Retirees Should Consider as Yields Hit Multi-Year Highs
In May, 2025, rampantly unrestricted congressional spending caused Moody’s to downgrade US debt from Aaa to Aa1. This was a seismic shift that showed that the debt levels being generated were so unsustainable that an independent US credit rating agency cut their rating on US sovereign debt.
The long bond yield climbed to as high as 5.089% before meandering its way back down to 4.52% by late October 2025. However, it has climbed back up again throughout Q1 2026, and touched 4.99% in late March, 2026, hovering between 4.90% and 5.00% ever since. However, long overdue interest rate cuts should be announced by the Federal Reserve in May as Jerome Powell’s successor takes the reins. That will goose bond prices and lower yield rates across the board. In anticipation of this inevitability, investors wishing to lock in the most recent higher rates may want to take a look at the following bond ETFs:
- Vanguard Total Bond Market Index Fund (NASDAQ: BND)
- Vanguard Intermediate-Term Corporate Bond Index Fund ETF Shares (NASDAQ: VCIT)
- Vanguard Emerging Markets Government Bond Index Fund (NASDAQ: VWOB)
Vanguard Total Bond Market Index Fund
BND is a solid US bond ETF for those wanting upside with the safety of investment grade rated assets.
Designed to track the Bloomberg U.S. Aggregate Float Adjusted Index, BND boasts a range of investment grade bonds totalling 11,471 different holdings in its $387 billion AUM. Delivering a 3.91% yield at the ime of this writing, BND’s portfolio is apportioned in the following way:
- US Treasury or Government Bonds: 68.86%
- BBB-rated Corporates: 12.60%
- A-rated Corporates: 11.95%
- AA-rated Corporates: 3.35%
- AAA-rated Corporates or other: 3.08%
- Unrated bonds: 0.15%
Average maturity: 8 years
Average Duration: 5.7 years
Average Coupon: 3.81%
BND was awarded a Morningstar 3-star Gold rating.
Vanguard Intermediate-Term Corporate Bond Index Fund ETF Shares
VCIT delievers higher yields that BND albeit at a risk trade-off, since it does have below investment grade bonds in its portfolio.
Although slightly riskier than BND, VCIT has been delivering a superior 4.72% yield on a much smaller $66.4 billion AUM warchest. It tracks the Bloomberg U.S. 5–10 Year Corporate Bond Index as its benchmark. Eschewing the US treasury market, VCIT gets his yield solely from 2,289 different corporate bonds allocated accordingly:
- BBB-rated Corporates: 49.07%
- A-rated Corporates: 44.96%
- AA-rated Corporates: 5.75%
- AAA-rated Corporates or other: 0.31%
Average maturity: 7.5 years
Average Duration: 6 years
Average Coupon: 4.93%
VCIT was awarded a Morningstar 4-star Gold rating
Vanguard Emerging Markets Government Bond Index Fund
The sovereign bonds that comprise the VWOB portfolio are delivering a near 6% yield, yet have mitigated risk enoiugh to earn a 3-star Gold rating from Morningstar.
Emerging markets often entail a greater risk/reward ratio. Certain nations are fabulously wealthy but still categorized as “emerging markets”, while others have potential, but are plagued by political instability, corruption, or other obstacles. Designed to follow the Bloomberg USD Emerging Markets Government RIC Capped Index, VWOB sports a 5.99% yield at the time of this writing, with monthly payouts. Possessing assets of $6.3 billion among its 910 holdings, it is the smallest ETF of the three presented here. Predominantly invested in sovereign bonds of other nations, with its largest holdings in bonds from Saudi Arabia, Mexico, Qatar, and Argentina, the VWOB portfolio appears thus:
- BBB-rated: 29.60%
- BB-Rated: 24.79%
- A-rated: 20.41%
- B-rated: 10.11%
- AA-rated: 8.90%
- Below B: 6.24%
Average maturity: 11.1 years
Average Duration: 6.8 years
Average Coupon: 5.47%
VWOB was awarded a Morningstar 3-star Gold rating
A U.S. and Emerging Markets Bond Portfolio Makes Sense
There’s very little doubt that a new Federal Reserve chair, likely to be nominee Kervi Warsh, will cut interest rates sometime in Q2 or Q3 of 2026. Jerome Powell’s stubborn refusal to do so in any meaningful fashion, despite the majority of central banks taking the steps months ago, makes a Federal Reserve interest rate cut a long overdue event.
That said, apart from some individual cases, such as Italy and Greece, the developed European world may not fare so well. According to Reuters, the IMF and OECD downgraded the UK’s 2026 growth projections from 1.3% to 0.8%, a full 50 basis points. While the Iran War may have peripheral impact, the huge drain on public resources from rampant, unchecked immigration has led to a British crisis. The UK social services councils are estimated to have overspent by £564 million, and violent crime in London reportedly was up as high as +40% as of Q4 2025, according to The Guardian.
Additonally – in spite of European stocks doing very well, developed European nations differ widely in their respective financial healths. For example, while Italy’s and Spain’s markets are considered to be overvalued, Denmark’s is undervalued, and France’s market is one of the weakest.
With that in mind, a US and emerging markets ETF portfolio, especially one in which many of the larger holdings are from nations covered in the Shield of the Americas membership, may look to do very well in 2026.
