Vanguard Intermediate-Term Bond ETF

BIV

Market cap $25.2B

In a rate-hiking environment the last few years, short-term bonds have been the default exposure option. But as the bond market expects more rate cuts to come after September's drop of 25 basis points, investors may want to consider intermediate bonds as a way to maximize income.

Vanguard Intermediate-Term Bond ETF offers diversified, investment-grade exposure to the 5–10 year segment of the U.S. bond market at a minimal cost. BIV stands to benefit from an anticipated rate cut, a dovish Fed outlook, and reduced Treasury issuance in its maturity range, supporting bond price appreciation. The ETF provides recurring income, low fees, and relative stability, making it suitable for the defensive side of investor portfolios.

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BIV offers on average around A-rated bonds, with limited credit spread exposure, making it less risky amid macroeconomic uncertainty. Still, credit spreads are historically low, which is concerning given weakening labor market dynamics and potential for higher spreads ahead. BIV's 6-year duration makes it sensitive to rate changes; potential rate cuts could benefit the fund even if labor markets weaken and credit spreads were to drive up YTMs.

BIV's long duration and low credit spreads make it sensitive to rising rates and macro risks, especially with current geopolitical tensions. Short-term rates may stay higher than expected due to higher oil prices that could be sustained by conflict in the Middle East. Long-term risks include US isolationist policies threatening the dollar's reserve status, which could worsen funding conditions and hurt US debt. Markets are clearly thinking about this.

Investors have upped their interest in actively managed bond ETFs, pouring record capital into them in January as some paid up in hopes of stronger returns.

With a steepening yield curve and rate cut expectations looming, the environment for the bond market can be a tricky one to navigate. That said, here are three bond funds from Vanguard to consider.

If you're retired and trying to keep your life as simple as possible, consider a foundational investment in these two income ETFs.

The yield curve is starting to steepen again, giving fixed income investors an opportunity to consider long-term debt again. However, if the risk of stepping too far out into the yield curve is too much to bear, consider using intermediate bond options.

The question of whether the economy is in a recession or not, a forthcoming presidential election, and interest rates add to the high level of uncertainty in the current market. As such, fixed income investors may want to take a middle-ground approach with bonds and opt for debt with intermediate maturity dates.