Why Bond ETFs Still Matter in 2025

As inflation pressures persist and economic growth cools, financial advisors and investors are seeing renewed value in bond ETFs. 

For evidence, look no further than the first quarter, when core bond ETFs rose 2.8% while the S&P 500 dipped 4.3% and many fixed-income funds continue to edge out the stock benchmark year to date.  

With markets caught between the dual threats of inflation, which can drive yields higher, and a slowing economy, which boosts demand for safe havens, investors are rediscovering how different fixed-income ETFs can provide balance, stability and strategic flexibility in a diversified portfolio.

How Bond ETFs Support a Range of Investment Strategies

Bond ETFs aren’t one-size-fits-all; they cover a wide spectrum of maturities, sectors and objectives. Here’s how advisors and investors can use different types of bond ETFs to align with specific goals.

Ultra-Short-Term Treasury ETFs: SGOV and BIL

Bond ETFs like the iShares 0-3 Month Treasury Bond ETF (SGOV) and the SPDR Bloomberg 1-3 Month T-Bill ETF (BIL) focus on Treasury bills with maturities of one to three months. In 2025, they’ve become popular cash alternatives, offering attractive yields north of 4% with minimal interest rate risk—ideal for preserving capital and maintaining liquidity.

Long-Term Treasury ETFs: TLT, VGLT

Bond ETFs like iShares 20+ Year Treasury Bond ETF (TLT) and Vanguard Long-Term Treasury Index Fund ETF Shares (VGLT) offer exposure to long-term Treasury bonds, which can shine during recessionary periods when interest rates fall. While they can be volatile, the rate-sensitive ETFs serve as a hedge against equity risk as their prices can rise higher than shorter-duration bond ETFs when the economic outlook worsens.

Core Bond ETFs: BND and AGG

The Vanguard Total Bond Market Index Fund ETF Shares (BND) and the iShares Core U.S. Aggregate Bond ETF (AGG) are diversified bond market funds that hold a mix of Treasurys, mortgage-backed securities and investment-grade corporates, representing the entire U.S. bond market. They’re well-suited as foundation holdings that provide broad fixed-income exposure and reduce overall portfolio volatility.

Inflation-Protected ETFs: VTIP and TIP

Treasury inflation-protected securities (TIPS) ETFs like the Vanguard Short-Term Inflation-Protected Securities ETF (VTIP) and the iShares TIPS Bond ETF (TIP) can help safeguard portfolios from persistent inflation by adjusting principal in line with the CPI. They can be especially helpful when markets are unsure about the Fed’s ability to control rising prices.

Why Bond ETFs Still Matter in 2025

Bond ETFs remain a powerful diversification tool, especially in the complex market environment of 2025. With equities facing headwinds from inflation, interest rate uncertainty and a decelerating economy, strategic bond ETF allocations can help investors weather volatility, protect capital and earn attractive income.  

Whether used for core exposure, inflation protection or tactical hedging, these flexible instruments deserve a central role in well-constructed portfolios.

Disclaimer: This article is for informational purposes only and does not constitute financial advice. Investing in ETFs involves risks, and investors should carefully consider their investment objectives and risk tolerance before making any investment decisions.

At the time of publication, Kent Thune held a position in SGOV.