BND or TBUX: Which Bond ETF Is the Better Buy?

Buying bonds is supposed to be safer than investing in stocks. But in the past few years, many bond funds haven't felt very safe. Rising interest rates in 2022 and 2023 drove bond prices down. If that trend continues, it could be bad news for bond investors.

So far in 2026, the Federal Reserve has not raised short-term interest rates. But longer-term interest rates (which are not directly controlled by the Fed) have been going up, as shown by the yields on 10-year and 20-year U.S. Treasury bonds. These longer-term bond yields have recently reached levels that are close to their 10-year highs.

Bond investors seem worried about inflation, federal government spending, and the long-term costs of servicing the U.S. national debt. Those concerns are driving up longer-term bond yields and driving down bond prices.

In an environment of rising interest rates and uncertainty about long-term U.S. Treasury yields, investors might be best served finding an exchange-traded fund (ETF) that sticks with short-term bonds. The T. Rowe Price Ultra Short-Term Bond ETF (NYSEMKT: TBUX) fits that strategy -- it only invests in short-term debt, and it's delivered 1.48% returns (by net asset value) year to date.

That's a better return in 2026 than another popular bond fund, the Vanguard Total Bond Market ETF (NASDAQ: BND). This fund invests in a wider range of bonds, including some longer-term bonds. It's delivered negative returns of -0.93% (by net asset value) year to date.

Let's look at these two bond ETFs and see which might be the better choice for your portfolio.

Image source: Getty Images.

BND: Thousands of bonds, 10 years of 1.67% annualized returns

The Vanguard Total Bond Market ETF is one of the easiest, lowest-cost ways for individual investors to buy bonds. It offers exposure to the broad taxable U.S. bond market, and it holds more than 11,000 bonds, including Treasury bonds, corporate bonds, and mortgage-backed securities. The fund's expense ratio is only 0.03%.

This bond ETF has delivered average annual returns (by net asset value) of 1.67% for the past 10 years and only 0.18% for the past five years. Those near-zero returns included some bad annual losses. In 2021, the ETF had a negative total return of -1.66% by net asset value, and in 2022, it lost another 13.15%.

But with the Fed cutting interest rates in late 2024, this fund has delivered better performance in the past three years (3.46% returns) and one year (4.02%). As of May 15, the Vanguard Total Bond Market ETF had earned a 30-day SEC yield of 4.39%, meaning it's on track to earn that income for the full year if present trends continue.

This fund doesn't invest in "risky" debt. It only holds investment-grade bonds. About 69% of the fund's holdings are U.S. government bonds (including U.S. Treasuries), and the other bonds all have credit ratings of BBB or higher.

But this bond ETF still faces some risk from its longer-duration bonds. About 20% of the fund's holdings are bonds with durations of 10 years or longer. If long-term interest rates go up, the prices of those bonds will go down -- and that could mean lower returns for this fund's investors.

TBUX: More than four years of 4.1% annualized returns

The T. Rowe Price Ultra Short-Term Bond ETF was launched in September 2021, and since its inception has delivered average annual returns (by net asset value) of 4.1%. This includes 5.81% average returns during the past three years and a 4.96% return in the past year. It doesn't have as long a track record, but this short-term bond ETF has strongly outperformed the Vanguard Total Bond Market ETF during that time.

TBUX Total Return Level data by YCharts

What's in the T. Rowe Price Ultra Short-Term Bond ETF? As of May 19, the fund included more than 600 holdings from nearly 300 issuers. All of the fund's holdings are intended to be short-term investment-grade bonds and securities, including government bonds, corporate securities, mortgage-backed securities, and more.

The T. Rowe Price Ultra Short-Term Bond ETF is actively managed, which means the investment firm is trying to make choices with how the fund deploys its money that it believes will deliver better results for the fund's investors. It charges an expense ratio of 0.17%, which is not prohibitive but still 14 basis points higher than Vanguard's passive bond fund.

Paying more for actively managed funds isn't always worth it. But if you agree with the strategy of investing in short-term debt, 0.17% could be a reasonable fee, especially if this fund continues to strongly outperform broader bond index funds.

BND vs. TBUX: Which bond ETF to buy?

I own the Vanguard Total Bond Market ETF and I like that it's ultra-low-cost (0.03% expense ratio) and incredibly diversified (more than 11,000 bonds). I view this Vanguard ETF as my "set it and forget it" way to include bonds in my long-term investment portfolio. I try not to take extra risks or pay extra fees with my fixed-income investments.

If you're a long-term investor who's willing to accept the usual interest rate risks and ups and downs in the bond market, the Vanguard Total Bond Market ETF is tough to beat. It ranks among the best bond ETFs for good reason.

But if you are worried about longer-term interest rates going up, you want to earn higher yields on your cash reserves or other short-term money, and you're willing to pay a slightly higher fee for active management, the T. Rowe Price Ultra Short-Term Bond ETF could be worth a look.

Ben Gran has positions in Vanguard Total Bond Market ETF. The Motley Fool has positions in and recommends Vanguard Total Bond Market ETF. The Motley Fool has a disclosure policy.