These ETFs Offer Investors the Fixed Income “Sweet Spot”

Core Insights - The Morningstar 2026 Global Outlook Report highlights intermediate bonds as a potential solution for fixed income investors seeking additional yield in 2026 as rate cuts are anticipated [1][2]. Fixed Income Advantages of Intermediate Bonds - Intermediate bonds, maturing in five to ten years, provide a balance between mitigating rate risk and enhancing yield potential in a changing economic environment [2][3]. - These bonds offer yields comparable to cash rates and benefit from capital appreciation as they approach maturity, especially if central banks cut rates [3]. Investment Options - The Vanguard Intermediate-Term Bond ETF (BIV) is recommended for those seeking exposure to intermediate bonds, tracking the Bloomberg U.S. 5–10 Year Government/Credit Float Adjusted Index [3]. - For investors willing to accept more credit risk for higher yields, the Vanguard Intermediate-Term Corporate Bond ETF (VCIT) focuses on high-quality corporate bonds with similar maturity dates [4]. - The Vanguard Intermediate-Term Treasury ETF (VGIT) is suitable for those wanting to maintain a low-risk profile while still pursuing yield potential from intermediate bonds [6]. Market Conditions - The report notes that US investment-grade bonds have historically offered an extra 132 basis points of yield over US Treasuries, but the current spread is near historical lows at just over 70 basis points, despite deteriorating company fundamentals [6]. - The tightening credit spreads between corporate bonds and Treasuries are a consideration for fixed income investors evaluating corporate bond exposure [5]. Fund Characteristics - All three mentioned funds (BIV, VCIT, VGIT) feature a low expense ratio of 5 basis points or $5 per every $10,000 invested [7].