10 Best Bond ETFs for a Slowing Economy in 2024

Bond ETFs are set to have their best year since 2020.

kent
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Research Lead
Reviewed by: etf.com Staff
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Edited by: Ron Day

Amid a slowing economy, when inflation is cooling and interest rates are steady or falling, the top-performing bond ETFs will likely be those with a combination of longer maturities and investment grade or higher credit quality. 

Keeping in mind that investors may have a range of fixed income needs and varying risk tolerance, we feature a diverse set of funds in our list of 10 best bond ETFs for 2024.  

Is It Time to Invest in Bond ETFs? 

Whether the Federal Reserve engineers a soft landing, or the U.S. economy enters a recession, the consensus forecast for 2024 is that the economy will be slower than 2023. This sets the stage for the Fed to end its rate hike campaign and potentially cut rates if the growth turns negative. In this environment, bond ETFs could have their best year since 2020. 

Advantages of Bond ETFs in 2024

Bond ETFs can offer several potential advantages for investors in 2024, as many analysts expect the economy to slow or enter a recession, which could lead to price appreciation. Bond ETFs also offer other benefits, such as income generation and diversification.  

Here are some potential advantages of bond ETFs in 2024: 

Price Appreciation Potential and Recession Hedge

If interest rates decline in 2024, the market value of bond ETFs will likely increase, as prices move in the opposite direction of rates. If the U.S enters a recession, a fall in rates would be more pronounced, which would make price appreciation greater for bond ETFs, especially those that track a long-term bond index. 

Relative Safety to Stocks 

In a slowing economy, bond prices tend to be more stable, and generally positive, compared to stocks. While the U.S. economy may remain strong enough to support higher stock prices in 2024, the risk of a significant correction is at least elevated compared to 2023.  

Income Generation

While bond yields could fall in 2024, they are still near highs not seen in 16 years. Bond ETFs typically pay interest or coupon payments to investors based on the yields of the underlying bonds. This can make bond ETFs attractive to income investors, especially those that prefer monthly dividend and interest payments, as most single-issue bonds have semi-annual or annual payments. 

Risk Management Through Diversification

Bond ETFs provide risk management benefits by allowing investors to diversify across various bond issuers, maturity and credit quality. This diversification can be particularly beneficial in 2024, as different segments of the bond market may respond differently to rate changes. 

Liquidity

Bond ETFs trade on stock exchanges, providing investors with liquidity. In a shifting economic environment, investors may want to adjust their fixed-income exposure quickly. The ability to buy or sell bond ETF shares throughout the trading day at market prices enhances liquidity and flexibility. 

2024’s Best Types of Bond ETFs to Invest In

Here are some types of bond ETFs that investors may consider when the economy is slowing: 

Long Term Bond ETFs

Long term bond ETFs provide exposure to bonds with maturities greater than 10 years. Since longer-term bonds are more sensitive to changes in interest rates than shorter-term bonds, they would typically have greater price appreciation in a falling interest rate environment.  

Long-term Treasury bond ETFs, such as the iShares 20+ Year Treasury Bond ETF (TLT), or diversified long-term bond ETFs, such as the Vanguard Long-Term Bond ETF (BLV), are good choices here.  

For greater interest-rate sensitivity, and a higher risk-return profile, the PIMCO 25+ Year Zero Coupon US Treasury ETF (ZROZ) could see more price appreciation in a falling rate environment. 

Intermediate Term Bond ETFs

Intermediate-term ETFs focus on bonds with maturities typically ranging from 3 to 10 years. These funds can offer a combination of decent yields and price appreciation potential in a slower economy, but with less interest rate risk than long-term bond ETFs.  

The largest ETFs in this category include the Vanguard Intermediate-Term Corporate Bond ETF (VCIT) and the iShares 7-10 Year Treasury Bond ETF (IEF).  

Broad Market Bond ETFs

Investors wanting to take a diversified approach and cover the entire U.S. bond market in one fund can consider funds with high AUM and low expenses in this category, such as the Vanguard Total Bond Market ETF (BND) or the iShares Core US Aggregate Bond ETF (AGG).  

For investors wanting to diversify around the world, the Vanguard Total International Bond Market ETF (BNDX) is the largest fund choice. 

Municipal Bond ETFs

Municipal bond ETFs, such as the iShares National Muni Bond ETF (MUB) or the Vanguard Tax-Exempt Bond ETF (VTEB), can be appealing for investors in high tax brackets who are investing in a taxable brokerage account, as income is tax-free at the federal level. These funds both offer diversified exposure with municipal bond holdings averaging intermediate-term duration and investment grade quality.  

The Best Bond ETFs for 2024’s Economy 

TickerFundExpense RatioYield1-Mo Return
TLTiShares 20+ Year Treasury Bond ETF0.15%4.57%9.92%
BLVVanguard Long-Term Bond ETF0.04%5.34%9.98%
ZROZPIMCO 25+ Year Zero Coupon US Treasury ETF0.15%4.23%16.02%
VCITVanguard Intermediate-Term Corporate Bond ETF0.04%5.77%5.95%
IEFiShares 7-10 Year Treasury Bond ETF0.15%4.39%4.55%
BNDVanguard Total Bond Market ETF0.03%4.77%4.05%
AGGiShares Core US Aggregate Bond ETF0.03%4.57%4.59%
BNDXVanguard Total International Bond Market ETF0.07%3.54%3.43%
MUBiShares National Muni Bond ETF0.07%3.71%5.71%
VTEBVanguard Tax-Exempt Bond ETF0.05%3.89%5.72%

Key Takeaways on Best Bond Performance in 40 Years

The data provided in the table is as of November 30, 2023. The one-month total price gains are provided to illustrate how bond ETFs with longer average duration, such as TLV, BLV and ZROZ, can see greater price appreciation when yields are falling dramatically. This performance illustrates the best month for the U.S. bond market in nearly 40 years.

Investors should keep in mind that some long-term bond ETFs had declines in price of as much as 20% for the year prior to this strong recovery in November, illustrating how rapidliy rising yields can make bond prices move dramatically lower. As always, past performance is no guarantee of future results.  

Bottom Line on Bond ETFs in 2024

While bond ETFs may offer many potential advantages in 2024, including relative safety to stocks and price appreciation in a falling rate environment, investors should carefully consider their investment goals, risk tolerance and time horizon when choosing these or any investments. Economic conditions and interest rate trends can change, and staying informed about market dynamics is crucial.  

For more guidance in choosing ETFs, investors can use etf.com’s ETF screener and the ETF comparison tool

Kent Thune is Research Lead for etf.com, focusing on educational content, thought leadership, content management and search engine optimization. Before joining etf.com, he wrote for numerous investment websites, including Seeking Alpha and Kiplinger. 

 

Kent holds a Master of Business Administration (MBA) degree and is a practicing Certified Financial Planner (CFP®) with 25 years of experience managing investments, guiding clients through some of the worst economic and market environments in U.S. history. He has also served as an adjunct professor, teaching classes for The College of Charleston and Trident Technical College on the topics of retirement planning, business finance, and entrepreneurship. 

 

Kent founded a registered investment advisory firm in 2006 and is based in Hilton Head Island, SC, where he lives with his wife and two sons. Outside of work, Kent enjoys spending time with his family, playing guitar, and working on his philosophy book, which he plans to publish in the coming year.