Key Points
The bond market has gotten a bad rap for what happened in 2022 and pretty much ever since.
The iShares 20+ Year Treasury Bond ETF (NASDAQ: TLT) is still 40% below the all-time high it set six years ago. Investment-grade corporate bonds are about five years removed from their last all-time high, but they’re finally almost back to where they were in 2021.
While recent returns haven’t been what investors were hoping for, and there are significant questions about even using bonds in a portfolio, the environment is in much better shape today than it was several years ago.
Risk-free Treasury bills come with 3.5% yields. A diversified investment-grade corporate bond portfolio yields more than 5%. Junk bond ETFs offer somewhere around 6.5%. These are real yields with real income potential that investors shouldn’t be ignoring.
Let’s take a look at three Vanguard ETFs that look particularly attractive for the latter half of 2026. I think you’ll notice a theme.
Vanguard Short-Term Treasury ETF
Treasury bill yields generally follow what the Federal Reserve does with interest rates. The Vanguard Short-Term Treasury ETF (NASDAQ: VGSH) moves one step up the maturity ladder by targeting bonds with one to three years remaining. The 3.9% yield at recent prices means you’re getting a meaningful income premium over T-bills, but it’s essentially still an investment based on the belief that the Fed won’t be cutting rates anytime soon.
If the Fed follows through on its indication that rate hikes are possible in the near future, you want to consider removing duration risk from your bond portfolio. There is still some here in this ETF, so there is the possibility of share price declines should rates rise. But it’s generally pretty minimal. With the Vanguard Short-Term Treasury ETF, consider capturing the yield and letting things settle in the background.
Vanguard Short-Term Corporate Bond ETF
If you’re feeling a little more optimistic about bond market and economic stability, you can introduce some credit risk to the equation for another income boost. The Vanguard Short-Term Corporate Bond ETF (NASDAQ: VCSH) keeps maturities short and only invests in investment-grade securities. The recent 4.4% yield represents another increase in income to account for the added risk above and beyond short-term Treasuries.
Overall, the corporate bond market credit profile still looks pretty good. Defaults are low, and the odds of any one issue causing trouble in a portfolio of more than 3,000 bonds are minimal. But yields are likely to move higher should inflation, slowing growth, the Iran war, or rising rates start to cause more problems. I think there’s enough stability in the economy with strong corporate profits in the background to help insulate against some of these risks. That makes going for the higher yield here a reasonable risk to take.
Vanguard Short-Term Inflation-Protected Securities ETF
Yes, another short-term bond fund. As you might have been able to tell at this point, I’m not terribly optimistic that rates are coming down anytime soon. The Fed has essentially said that rate cuts won’t happen in 2026. Inflation is already above 4%, and that won’t allow for rate relief anytime soon.
The Vanguard Short-Term Inflation-Protected Securities ETF (NASDAQ: VTIP) is designed to provide portfolio protection in these situations. Principal amounts will adjust according to inflation, which could be a very important feature over the next six to 12 months. Despite several ceasefire announcements, it doesn’t look like this conflict is ending soon. Falling oil prices have eased some of the short-term price burdens, but I think there’s a medium to high risk that they flare up again. With inflation spreading beyond just the energy market, it would be wise to layer on a little protection here in case stubborn inflation rates don’t move back down. The yield at recent prices is 3.6%.
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David Dierking has positions in iShares Trust-iShares 20+ Year Treasury Bond ETF. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
