Best Bond ETFs To Hedge Against Market Volatility in 2025

The world of investing is full of ups and downs. In 2025, we see many signs of market trouble. Geopolitical tensions, trade wars, and rising uncertainty have made the market very unpredictable. Many investors now seek safety and stability. Bond ETFs have become a popular way to protect investments. They are a type of fixed-income investment that gives regular income and lower risk.

In this article, we will look at the Best Bond ETFs To Hedge Against Market Volatility in 2025. We will share easy steps on why these bond ETFs are smart choices and how they help with portfolio diversification and risk reduction.

Why Bond ETFs Are a Smart Choice for 2025

Bond ETFs have become a popular topic this year. Experts on financial news sites are talking about the best ways to stay calm during market chaos. The CBOE Volatility Index (VIX), sometimes called the “fear gauge,” has shown that 2025 is a nervous time for many people. At the same time, CNN’s Fear and Greed Index has dipped into “extreme fear” territory, making more folks cautious about stock investments.

Bond ETFs Offer Steady Income and Stability

Bond ETFs are built on fixed-income securities. These can include government bonds, which are loans to national governments, or corporate bonds, which are loans to companies. Because bonds pay interest at set times, bond ETFs can give a steady stream of income. This monthly or quarterly payout can help investors handle living expenses or simply feel more comfortable about their finances.

When we talk about market volatility, we mean that stock prices can swing up or down in large jumps. A single headline can send share prices falling, which is unsettling. Bond ETFs usually do not move as wildly because interest payments and credit ratings back their value. That makes them more reliable in stormy markets.

Ease of Trading and Diversification

Bond ETFs let you trade bonds as easily as you’d trade a stock. You can buy or sell them during the day on an exchange. Plus, each ETF holds a range of bonds. Some bond ETFs focus on U.S. government debt. Others hold a mix of government, corporate, or even municipal bonds. By owning an ETF, you gain access to different bonds at once, so you do not rely on just one issuer.

Responding to the 2025 Climate

A lot has changed in the world since early 2024. Tariff disputes, discussions about rare-earth minerals, and shifting alliances have forced investors to rethink their strategies. Many are deciding to add more fixed-income ETFs to keep their portfolios balanced. Stock gains can be exciting, but if the market drops, your bond holdings may help soften the blow. This is especially true when interest rate risk and credit concerns rise.

Key Factors to Consider When Choosing Bond ETFs

When selecting bond ETFs, it’s crucial to consider several factors to ensure they align with your investment goals. Let’s break down some of the most important metrics:

1. Investment-Grade Bonds

Investment-grade bonds are bonds with high credit ratings from established entities, such as governments and well-known corporations. These bonds have a lower risk of default, making them a safer choice for investors looking to hedge against market volatility. Bond ETFs that hold investment-grade bonds provide stability and ensure reliable returns during uncertain times.

2. Expense Ratio

The expense ratio represents the fee charged by the fund for managing the ETF. Lower expense ratios are preferable as they leave more room for returns. Look for bond ETFs with low expense ratios, typically under 0.50%, to maximize your potential gains.

3. Credit Risk

Credit risk is the likelihood that a bond issuer will default on its payments. When investing in bond ETFs, always consider the credit risk of the underlying bonds. Bonds with higher credit ratings, such as AAA-rated or investment-grade bonds, have lower credit risk and are ideal for hedging against market volatility.

4. Bond Duration

Duration refers to the sensitivity of a bond’s price to interest rate changes. Long-term bonds tend to be more sensitive to interest rate fluctuations than short-term bonds. Bond ETFs with shorter durations are better at minimizing the impact of rising interest rates, which is particularly relevant in the current market environment.

Top Bond ETFs to Hedge Against Market Volatility in 2025

Here we will explore some of the best bond ETFs that people are watching in 2025. These funds often appear in top Google search results, thanks to their track records and popularity among both experts and everyday investors. While this list is not an official ranking, it includes bond ETFs that many feel can handle the year’s market swings.

1. Vanguard Total Bond Market ETF (BND)

This ETF gives you a broad slice of the U.S. bond market. It holds more than 11,300 investment-grade bonds, including government debt and corporate bonds.

Key Features:

• Expense ratio: Around 0.03%
• 30-day SEC yield: Roughly 4.5%
• Very large asset base, which can help keep trading costs low.

Why It’s a Top Pick:

• Many experts call this one of the best bond ETFs for a single “catch-all” solution.
• Offers a mix of short, medium, and longer-term bonds.
• Ideal for investors who want one fund for many bond types.

BND is popular among those who want to reduce stress without manually picking different bonds. Because it covers so many issuers, it can help spread out credit risk. Keep in mind that its broad approach may not deliver the highest yields in any one category. Still, the flexibility can help it handle different market conditions.

2. Vanguard Ultra-Short Bond ETF (VUSB)

VUSB is an actively managed fund that invests in short-duration bonds. These bonds carry less interest rate risk than longer-term offerings.

Key Features:

• 30-day SEC yield: Around 4.7%
• Expense ratio: About 0.10%
• Focuses on high-quality bonds, usually with lower default risk.

Why It’s a Top Pick:

• With a shorter duration, VUSB tries to limit price drops when interest rates move.
• Active managers can adjust holdings as market conditions shift.
• This can be helpful if you want a place to park cash but still earn more than a normal savings account.

Many who are wary of uncertain times choose a short-term bond ETF. Even if interest rates rise, this ETF can switch its holdings to keep up. Although short-term yields might be lower than long-term yields, VUSB is known to stay competitive in this environment.

3. BondBloxx Bloomberg One Year Target Duration U.S. Treasury ETF (XONE)

XONE is designed around short-term U.S. Treasury bonds with a target duration of about one year. This gives investors a place to earn income with very little credit risk.

Key Features:

• 30-day SEC yield: Near 4.3%
• Expense ratio: 0.03%
• Only invests in U.S. Treasurys, which are seen as having minimal default risk.

Why It’s a Top Pick:

• Suitable for those who want stability during periods of market volatility.
• Treasurys are supported by the U.S. government, making them less risky than many other bond types.
• The extremely low expense ratio helps keep costs down.

If your main goal is safeguarding cash, short-term Treasury bond ETFs like XONE may be a smart route. By focusing on a one-year target duration, the fund tries to maintain a set level of interest rate sensitivity. This predictable approach works well for people who want to earn some yield while waiting out stock market swings.

4. BondBloxx BBB Rated 1-5 Year Corporate Bond ETF (BBBS)

BBBS invests in corporate bonds with a BBB rating and maturities between 1 and 5 years. BBB is the lowest tier of investment-grade bonds, but it can offer higher yields than AAA or AA bonds.

Key Features:

• 30-day SEC yield: Around 4.8%
• Expense ratio: 0.19%
• Maturity range reduces long-term interest rate risk.

Why It’s a Top Pick:

• Provides a blend of higher yield without diving into “junk” status.
• Shorter maturities can help with rising rate environments.
• Good for investors who want a middle ground between safety and yield.

Corporate bond ETFs can be riskier than Treasury ETFs because companies can default. However, BBB-rated companies have not crossed into high-yield (or junk) territory. This means you might get higher interest rates while still having a decent level of protection. BBBS is a specialized choice for those seeking more income but with moderate risk constraints.

5. SPDR Bloomberg 1-3 Month T-Bill ETF (BIL)

BIL holds Treasury bills (T-bills) that mature in 1-3 months. T-bills are known for minimal price swings and easy trading.

Key Features:

• 30-day SEC yield: Near 4.1%
• Expense ratio: 0.14%
• High liquidity, so it is easy to move in or out of positions.

Why It’s a Top Pick:

• A common choice for those who want a cash-like alternative.
• Ideal for risk-averse investors who do not want to tie up funds long-term.
• Useful for short-term reserves that can earn a better rate than some savings accounts.

BIL’s short focus means it has very low duration. This is helpful if you think interest rates may rise or if you need easy access to your money soon. While you will not see huge yield jumps, it’s a simple way to earn more than a standard checking account. People sometimes keep part of their emergency fund in T-bill ETFs like BIL because they are so stable.

6. iShares MBS ETF (MBB)

MBB tracks mortgage-backed securities (MBS) from agencies like Fannie Mae and Freddie Mac. These securities are backed by pools of home mortgages, which can offer steady monthly income.

Key Features:

• 30-day SEC yield: Roughly 4.1%
• Expense ratio: 0.04%
• High credit quality because it focuses on securities issued or guaranteed by government agencies.

Why It’s a Top Pick:

• MBS funds can sometimes yield more than standard Treasurys.
• MBS typically pay interest monthly, which can help with consistent cash flow.
• Good for investors who want to diversify beyond corporate and government bonds.

While MBS carry a different kind of risk tied to mortgage payments, a large fund like MBB can spread that risk over thousands of loans. Homeowners may refinance if interest rates drop, which can affect returns, but many investors see MBB as a stable option due to government support of its underlying loans.

7. Schwab Intermediate-Term U.S. Treasury ETF (SCHR)

SCHR invests in Treasurys that have 3-10 years left until they mature. That is considered intermediate-term bonds.

Key Features:

• 30-day SEC yield: About 4.3%
• Expense ratio: 0.03%
• Focuses on government-backed securities, offering strong credit quality.

Why It’s a Top Pick:

• Investors who want a balance between short-term security and long-term yield might prefer intermediate-term bonds.
• It can see more price movement than short-term funds, but yields can be higher.
• Low costs and the backing of the U.S. Treasury add to its appeal.

Intermediate-term bond ETFs can be a nice fit for medium-term goals. If you plan on using your money in a few years but want a bit more yield than short-term funds, SCHR is often suggested. It is not as volatile as long-term funds, but it offers more potential income than very short maturities.

How to Incorporate Bond ETFs into Your Portfolio

Now that you know the top bond ETFs, it is important to learn how to add them to your portfolio. Bond ETFs can help you build a safer and more balanced investment mix. Here are some simple steps and tips:

Start with a Plan

1. Assess Your Risk Tolerance:
   Begin by understanding how much risk you can handle. If the thought of a big market drop scares you, bond ETFs can help lower that worry. Use our risk tolerance guide to learn more.
2. Set Your Goals:
   Decide if you need regular income or just a safe place for your money. Your goals will help you choose the right mix of bond ETFs.

Rebalance Your Portfolio

Rebalancing means you adjust your investments to match your goals. As market conditions change, you may need to shift some of your money into bond ETFs. This helps maintain a healthy mix of stocks and bonds. Using bond ETFs in your portfolio is a smart way to protect against market swings. You can learn more about this process in our investment guide.

Dollar-Cost Averaging

This is a simple way to invest regularly. With dollar-cost averaging, you invest a fixed amount of money at set intervals. This can reduce the risk of buying at the wrong time and help you take advantage of market dips. Over time, your average purchase cost may become lower, making bond ETFs an even stronger part of your portfolio.

Monitor and Adjust

Once you invest in bond ETFs, it is important to check your portfolio now and then. Markets change, and you may need to adjust your investments. Use clear steps:

• Review your portfolio every few months.
• Compare your returns with your goals.
• Adjust your bond ETF holdings if needed.

By following these tips, you can use bond ETFs to build a strong, diversified portfolio that meets your needs for steady income and lower risk.

Conclusion

As market volatility continues to shape the investment landscape in 2025, bond ETFs have proven to be a reliable tool for protecting portfolios. They offer steady income, reduce risk, and provide diversification, making them a smart choice for investors navigating uncertain times. Whether you’re looking for the safety of Treasury bonds with SCHR, the stability of short-duration options like VUSB, or the higher yields of corporate bonds with BBBS, there’s a bond ETF to suit your needs.

By incorporating best bond ETFs into your portfolio, you can hedge against market swings and achieve long-term financial goals. Stay proactive, reassess your risk tolerance, and consider consulting a financial advisor to make the most of these versatile investment tools. With the right strategy, bond ETFs can help you thrive in 2025 and beyond.