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The Best Bond Funds

These bond ETFs and mutual funds earn Morningstar’s top rating in 2024.


The U.S. bond market bounced back in 2023 after a tough 2022: The Morningstar US Core Bond Index finished the year up 5% after falling nearly 13% in 2022. “Following the worst bond market ever in 2022, fixed-income markets largely normalized and rebounded in 2023,” says Morningstar chief U.S. market strategist Dave Sekera.

What’s next for the bond market?

“We forecast that the Fed will lower the federal-funds rate at its March 2024 meeting and continue to cut rates further to approximately 3.75% by the end of the year,” he notes. “We further project that the Fed will continue cutting rates, dropping to 2.25% by the end of 2025.” Sekera suggests investors favor longer-duration bonds, locking in their higher interest rates.

Regardless of where interest rates and bond yields are headed, there’s a case to be made for holding bond funds in your portfolio. One of the biggest reasons to do so is that bonds are still less risky over the long term than stocks.

Are Bond Funds a Good Investment?

Investors rely on bonds for many reasons: funding short-term goals, diversifying a stock-heavy portfolio over the long term, or generating income during retirement, to name a few. Before getting down to choosing a bond exchange-traded fund or mutual fund, step back and consider why you need one: What role will a bond fund play for you?

Once you know the need it’s filling, figure out whether a taxable-bond fund or municipal-bond fund is a better choice for you. If you’re investing via a tax-deferred account like an IRA or 401(k), a taxable-bond fund will be the better match. If you’re investing in a taxable account, though, a fund that buys municipal bonds might be the better choice on an aftertax basis.

A good place to start your search for the best bond funds to buy—both taxable and municipal alike—is with the Morningstar Medalist Rating. Mutual funds and ETFs that earn our highest rating of Gold are those that we think are most likely to outperform over a full market cycle.

The 61 Best Bond Funds to Buy

These ETFs and mutual funds all land in one of the bond Morningstar Categories and have at least one share class that earns our top Medalist Rating of Gold with 100% analyst coverage as of January 2024.

  1. American Funds Bond Fund of America ABNDX
  2. American Funds Limited-Term Tax-Exempt Bond FLTEX
  3. American Funds Tax-Exempt Bond TFEBX
  4. American Funds Tax-Exempt Fund of California EXCAX
  5. American Funds Tax-Exempt Preservation Portfolio TYEFX
  6. American Funds U.S. Government Securiies RGVFX
  7. Baird Aggregate Bond BAGSX
  8. Baird Core Plus Bond BCOSX
  9. Baird Short-Term Bond BSBSX
  10. Baird Ultra-Short Bond Investor BUBSX
  11. BlackRock High Yield Bond BHYIX
  12. BlackRock Strategic Global Bond MAWIX
  13. BlackRock Strategic Income Opportunities BASIX
  14. BlackRock Total Return MDHQX
  15. Dodge & Cox Global Bond DODLX
  16. Dodge & Cox Income DODIX
  17. Fidelity Investment Grade Bond FBNDX
  18. Fidelity Tax-Free Bond FTABX
  19. Fidelity Total Bond FTBFX FBND
  20. Hartford Strategic Income HSNVX
  21. iShares Core Total USD Bond Market ETF IUSB
  22. iShares Core U.S. Aggregate Bond ETF AGG
  23. JPMorgan Government Bond HLGAX
  24. JPMorgan Limited Duration Bond ETF JPLD
  25. JPMorgan Mortgage-Backed Securities JMBUX
  26. Loomis Sayles Core Plus Bond NEFRX
  27. Muzinich Credit Opportunities MZCIX
  28. PGIM High Yield PHYGX
  29. PGIM Short-Term Corporate Bond PSTQX
  30. Pimco Diversifed Income PDIIX
  31. Pimco Enhanced Short Maturity Active ETF MINT
  32. Pimco Enhanced Short Maturity Active ESG ETF EMNT
  33. Pimco Global Bond Opportunities (US-Hedged) PGBIX
  34. Pimco GNMA and Government Securities PDMIX
  35. Pimco Income PIMIX
  36. Pimco International Bond (Unhedged) PFUIX
  37. Pimco International Bond (USD - Hedged) PFORX
  38. Pimco Long Duration Total Return PLRIX
  39. Pimco Short Asset Investment PAIDX
  40. Pimco Total Return PTRAX
  41. Pimco Total Return ESG PTGAX
  42. Schwab Short-Term U.S. Treasury ETF SCHO
  43. Schwab U.S. TIPS ETF SCHP
  44. SPDR Portfolio Short-Term Treasury ETF SPTS
  45. T. Rowe Price Floating Rate PRFRX TFLR
  46. T. Rowe Price Tax-Free High Yield PRFHX
  47. Vanguard California Intermediate-Term Tax-Exempt VCADX
  48. Vanguard California Long-Term Tax-Exempt VCLAX
  49. Vanguard High-Yield Tax-Exempt VWALX
  50. Vanguard Intermediate-Term Corporate Bond Index/ETF VICSX VCIT
  51. Vanguard Intermediate-Term Tax-Exempt VWIUX
  52. Vanguard Limited-Term Tax-Exempt VMLUX
  53. Vanguard Long-Term Bond Index/ETF VBLLX BLV
  54. Vanguard Long-Term Corporate Bond Index/ETF VBLLX VCLT
  55. Vanguard Long-Term Tax-Exempt VWLUX
  56. Vanguard Short-Term Corporate Bond Index/ETF VSTBX VCSH
  57. Vanguard Short-Term Inflation-Protected Securities Index/ETF VTAPX VTIP
  58. Vanguard Short-Term Treasury Index/ETF VSBSX VGSH
  59. Vanguard Tax-Exempt Bond ETF VTEB
  60. Vanguard Total Bond Market Index/ETF VBTIX BND
  61. Vanguard Ultra Short-term Tax-Exempt VWSUX

The list of the best bond funds covers a hodgepodge of investment styles. It includes bond funds focusing on fixed-income securities with different maturities and credit qualities and features both taxable-bond funds and municipal-bond funds. It encompasses the best bond index funds and the best actively managed options, too. Morningstar portfolio strategist Amy Arnott suggests in her Role in Portfolio framework that investors stick with short- and intermediate-term bond funds as core holdings in their portfolios. Bond funds that focus exclusively on some other types of securities—such as corporate bonds, international bonds, long-term bonds, high-yield bonds, and so on—should play more limited roles in a portfolio.

Morningstar Investor members can learn more about each of these bond funds by reviewing their Analyst Reports.

What Is a Taxable-Bond Fund?

Taxable-bond ETFs and mutual funds invest in fixed-income securities issued by governments and corporations.

The “right” type of taxable-bond fund for you comes down to personal preferences. Will you forgo the incremental yield and diversification benefits that high-quality long-term bond funds typically offer for some protection against rising interest rates? Do you want to stick with the highest-quality bonds you can find, or are you willing to delve into lower-quality bonds in exchange for higher yields? Will you dabble in world bonds for yield pickup—and if yes, do you want currencies in the mix?

Here are several broad types of taxable-bond funds to consider:

Domestic Taxable-Bond Funds: ETFs and mutual funds that land in the long-term, intermediate-term, short-term, and ultrashort bond Morningstar Categories cluster here. These bond funds blend government bonds, asset-backed or mortgage-backed securities, investment-grade and high-yield debt, and a modest dose of international bonds. Although some funds are more income-oriented or more opportunistic than others, most provide decent exposure to a variety of bond types.

Flexible-Bond Funds: Multisector and nontraditional bond ETFs and mutual funds land here. Like domestic taxable-bond funds, flexible-bond funds can invest across a mix of bond types. Unlike domestic taxable-bond funds, flexible-bond funds invest more aggressively in lower-quality bonds and/or international debt. Nontraditional bond funds, in particular, enjoy a high degree of interest-rate flexibility and may employ shorting. Simply put, these are the least constrained bond funds.

Government-Bond Funds: The highest-quality taxable-bond mutual funds and ETFs reside in this group. To be included in one of the U.S. government-bond categories, a fund must keep at least 90% of its assets tucked in government securities. Funds that invest strictly in Treasuries, strictly in mortgage-backed securities, or in some combination of the two populate the group. There are three government-focused categories included here, broken down by duration: short government, intermediate government, and long government.

Corporate-Credit Funds: These ETFs and mutual funds favor bonds issued by corporations. Categories in this group include corporate-bond funds, high-yield bond funds, and bank-loan funds. Corporate-bond funds focus on bonds rated investment-grade; these funds, therefore, exhibit some degree of interest-rate sensitivity. High-yield bond funds target bonds rated as below-investment-grade; these funds invite more credit risk than interest-rate risk. Finally, bank-loan funds also invest in securities rated as below-investment-grade, and their interest payments are periodically reset. Because of their floating rates, bank loans theoretically have less sensitivity to interest-rate movements.

World- and Emerging-Markets Bond Funds: The ETFs and mutual funds in this group favor fixed-income securities issued by governments and corporations outside of the United States. That’s about the only thing they all have in common. World-bond funds must invest at minimum 40% of their assets in non-U.S. debt, but some exclude U.S. debt entirely, or focus on corporates rather than governments, or hedge currencies—or don’t. Emerging-markets debt funds, meanwhile, keep at least 65% of their assets in developing-markets debt; but here, too, there are significant variations in currency strategies.

Inflation-Protected Bond Funds: As their names suggest, inflation-protected bond ETFs and mutual funds seek to protect investors from rising inflation. As such, these funds invest in securities whose principal values adjust along with the rate of inflation.

3 Great Bond ETFs

What Is a Municipal-Bond Fund?

Municipal-bond ETFs and mutual funds invest in bonds that are issued by state and local governments to finance capital expenditures. Unlike taxable bonds, municipal bonds provide tax advantages that can be especially appealing to higher-income investors who are investing via taxable accounts. How? Municipal bonds are often exempt from federal taxes as well as state and local taxes.

On the surface, municipal bonds appear to yield less than taxable bonds of similar quality and maturity—but that’s before taxes are taken into consideration. How can you determine whether municipal bonds are a good choice for you? Use a tax-equivalent yield calculator to see how a given municipal-bond ETF or mutual fund’s yield compares with the yield of a similar maturity and quality taxable-bond ETF or mutual fund, given your particular tax circumstances.

The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.

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