Is It Time to Load Up on Bond ETFs?

Key Points

• There are compelling reasons to enter the bond market, though volatility and uncertainty about interest rates and other factors may give investors pause.
• A number of non-U.S. bond funds have thrived in this space, representing an area often overlooked.
• IBND, ISHG, and BWZ offer three subtly different approaches to the international bond space.

U.S. Treasury yields remain elevated after a spike following President Trump's tariff announcements earlier this year. With long-term Treasury yields still close to multi-year highs, investors are tempted to pivot away from stocks in favor of the bond market at this time. The benefits could compound if the Fed lowers interest rates later in the year, likely increasing bond prices.

That said, bond volatility has made some investors skittish, and lingering inflation above the Fed's target levels threatens to keep interest rates in place—or could even lead to the Fed raising rates further. There is also the concern with inflation, which could negatively impact real returns despite higher nominal yields on long-term bonds.

For investors keen to tap into the bond market at this unique moment, a number of exchange-traded funds (ETFs) offer diversification and ease of access that may make the prospect more compelling.

Below, we take a closer look at three noteworthy bond ETFs. Each of these funds focuses on non-U.S. bonds, providing exposure to an often-overlooked portion of the bond market that may be appealing while U.S. yields and prices continue to fluctuate.

Non-U.S. Bonds in a Diversified, Mid-Maturity Portfolio

The SPDR Barclays International Corporate Bond ETF NYSEARCA: IBND is a way for investors to gain broad exposure to a different segment of the bond market: bonds originating outside of the U.S. The fund's mandate includes a range of investment grade, fixed rate, and fixed income corporate market products. To provide stability, securities in the index must have at least one year remaining and the equivalent of at least $1 billion USD in market capitalization.

IBND's focus on mid-maturity bonds—nearly half of the portfolio is made up of bonds with maturity dates between 3 and 7 years out—prevents it from the extremes of either interest rate risk or credit risk. This may make the fund particularly attractive to investors either pessimistic about the U.S. bond space or cautious overall about bonds due to ongoing volatility.

IBND has an expense ratio of 0.50%, fairly high for a bond fund, although the unique ex-U.S. focus may justify the added fee. IBND is up about 12% year-to-date (YTD), far outpacing the S&P 500's performance.

An International Bond Fund Focused on Short-Term Treasuries

The iShares 1-3 Year International Treasury Bond ETF NASDAQ: ISHG provides a somewhat similar focus compared to IBND above in that it also targets international bonds. Beyond that, though, the target portfolio of ISHG is quite different: this fund focuses on Treasury bonds from developed market countries outside of the U.S. with a maturity in the 1-3 year range.

The shorter duration of these bonds may appeal to investors who are otherwise nervous about government bonds from other countries. While U.S. investors may typically underutilize this area of the bond space, it could present a uniquely appealing draw while the U.S. bond space is experiencing such significant turbulence.

ISHG has a lower annual fee than IBND, with an expense ratio of 0.35%. However, its return is almost the same as IBND's, at 11% so far in 2025.

Another Short-Term International Bond ETFs for Diversification and Yield in 2025

SPDR Bloomberg Barclays Short Term International Treasury Bond ETF NYSEARCA: BWZ is a third fund targeting international bonds. Like ISHG above, it also aims for Treasury products from developed markets with maturities in the range of 1-3 years. Still, there are key differences between the two: BWZ, for instance, has close to twice the number of holdings as ISHG, providing a broader diversification.

There are also significant discrepancies in the countries represented in the portfolios of these two funds. Despite its smaller portfolio, ISHG has more diversification in terms of the countries of origin of its bonds: Italy, Japan, Germany, and France are among the top nations represented, but none occupies even 10% of the full portfolio. 

By contrast, BWZ is more narrowly concentrated. Nearly a quarter of its portfolio is Japanese bonds, with other nations like Italy, Spain, and South Korea occupying only as much as 5% each.

BWZ's annual fee is 0.35%, the same as ISHG's, and its performance is fairly similar—it has returned more than 10% so far in 2025. Investors interested in these funds might consider the countries represented, current yield, effective duration, and other parameters to decide between the two.