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Balancing Income and Growth: 3 Bond ETFs to Own in 2026

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Key Takeaways

  • Bond ETFs took about one-third of $1T in 2025 ETF flows as the Bloomberg US Aggregate Bond Index gained 7.1%.
  • Rate cuts totaling 175 bps since Sept 2024 left starting yields attractive, boosting appeal for bond ETFs.
  • JBND gained 8% YTD, charges 25 bps, and holds a portfolio of high-quality U.S. investment-grade bonds.

As we near the end of 2025, a quick look at the U.S. bond market’s performance this year shows a story of resilience and record-breaking activity. After a volatile start shaped by tariff announcements and a historic federal government shutdown, fixed income emerged as a standout performer. 

The benchmark Bloomberg US Aggregate Bond Index has returned approximately 7.1% year to date, demonstrating the powerful role fixed income can play in a portfolio.

This success has translated directly into the exchange-traded fund (ETF) market, with bond ETFs claiming roughly one-third of the nearly $1 trillion that flowed into all ETFs in 2025, as per a Morningstar report published in mid-November. This highlights growing investor interest in bond ETFs, with passively managed ETFs taking the lead over their actively managed counterparts.

Heading into 2026, bonds are expected to continue playing a crucial role by generating reliable income and providing a cushion against potential stock market downturns. However, with the Federal Reserve on a dovish policy path and inflation still lingering above target amid a weakening job market, a strategic approach remains key.

Therefore, for investors on a strategic hunt for yield and duration, the emphasis remains on finding the right balance between risk and reward, putting the spotlight on bond ETFs as convenient vehicles for locking in higher yields before the Fed eases monetary policy further.

Amid this backdrop, we suggest a few bond ETFs that investors may add to their portfolios. Before that, let us delve a bit deeper into what drove the bond ETF market in 2025 and its prospects. This will help investors make an informed decision.

Factors Influencing Bond ETF Markets in 2025

The performance of bond ETFs in 2025 was driven by a confluence of macroeconomic and economic factors, as mentioned below:

•    Attractive Starting Yields Amid Interest Rate Cuts: The Federal Reserve cut its benchmark rate by 175 basis points since September 2024, bringing it to a range of 3.50% to 3.75% on Dec. 10, 2025. Despite these cuts, starting yields remained relatively high, providing a cushion and strong income potential that attracted investors to bond ETFs.

•    Market Volatility and Demand for Liquidity: Bond ETFs proved their structural resilience during periods of volatility, such as the tariff-driven uncertainty in April 2025. Their ability to offer intraday pricing and liquidity, even when underlying bond markets were stressed, bolstered their appeal as efficient portfolio tools.

•    The Rise of Active Management: A significant trend was the explosive growth of actively managed bond ETFs. These funds captured more than $100 billion in flows — 40% of all fixed income ETF flows, as of September 2025 (as per a BlackRock report) — as investors sought managers who could navigate credit selection and interest rate risks.

•    Yield Curve Normalizing: After years of inversion, the yield curve began to normalize. Investors demanded higher yields for longer-dated debt, which increased price volatility but offered better entry points for long-term holders. This drew significant capital into intermediate and long-term bond ETFs as investors raced to lock in yields.

2026 Outlook: What Lies Ahead for Bond ETFs?

The outlook for bond ETFs in 2026 remains cautiously optimistic, driven by expected interest rate cuts by central banks, which typically boost bond prices, creating opportunities for income and diversification. However, volatility persists due to stubborn inflation, uneven growth, and high government borrowing, thereby favoring flexible, active management strategies that can navigate credit risk and shifting rates. 

To this end, David DeBiase, who co-manages Fidelity Intermediate Bond Fund (FTHRX), mentioned in a report that a well-constructed actively managed portfolio of bonds with intermediate maturities may offer not only the familiar benefits of bonds but also the potential for capital appreciation and inflation-beating returns in 2026.

Given this landscape, investors might want to consider low-cost actively-managed bond ETFs for their 2026 portfolio allocations.

Bond ETFs to Own in 2026

Considering the aforementioned discussion, a prudent investor may add the following actively managed, low-cost bond ETFs to his or her portfolio in 2026. As intermediate-term bond ETFs, these funds invest in diversified portfolios of bonds with maturities typically between 3 and 10 years, offering a balance between the lower yields of short-term bonds and the higher yields of long-term bonds.

Schwab Core Bond ETF (SCCR - Free Report)

This fund, with assets worth $1.07 billion, seeks to provide total return while generating income by investing in U.S. dollar-denominated debt securities.

SCCR has gained 6.2% year to date and charges 16 basis points (bps) as fees. It traded at a volume of 0.17 million shares in the last trading session. 

Vanguard Core Bond ETF (VCRB - Free Report)

This fund, with assets worth $4.8 billion, seeks to provide total return while generating a moderate level of current income.

VCRB has gained 7.4% year to date and charges 10 bps as fees. It traded at a volume of 0.40 million shares in the last trading session. 

JPMorgan Active Bond ETF (JBND - Free Report)

This fund, with assets worth $4.7 billion, seeks to provide a well-diversified portfolio of high-quality U.S. investment-grade bonds.

JBND has surged 8% year to date and charges 25 bps as fees. It traded at a volume of 1.88 million shares in the last trading session. 
 


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