Government vs. Corporate Bonds: VGIT's Certainty or IGIB's Opportunity?

Vanguard Intermediate-Term Treasury ETF (NASDAQ:VGIT) and iShares 5-10 Year Investment Grade Corporate Bond ETF (NASDAQ:IGIB) differ most in sector exposure and risk profile: IGIB’s corporate bond focus brings higher yield and volatility, while VGIT’s Treasury-only approach offers greater historical resilience and scale.

Both funds target intermediate-term bonds, but their portfolios are built from different corners of the bond market. This comparison looks at cost, recent performance, risk, liquidity, and portfolio details to help investors decide which may better fit their fixed income goals.

Snapshot (cost & size)

The 1-yr return represents total return over the trailing 12 months.

Both ETFs are sharply priced, with only a 0.01 percentage point difference in fees. IGIB stands out for its higher dividend yield, which may appeal to investors seeking more income, while VGIT’s larger assets under management could offer greater liquidity.

Performance & risk comparison

IGIB’s five-year cumulative return edges out VGIT, but it has also posted a deeper maximum drawdown over the same period -- highlighting a trade-off between higher potential income and greater price swings.

What's inside

IGIB holds nearly 3,000 U.S. investment-grade corporate bonds with maturities between five and ten years, offering broad sector exposure beyond government debt. The fund has operated for 19 years, providing a deep pool of issuers and maturities. The portfolio’s corporate tilt means credit risk is present, but it also drives the fund’s higher yield and return potential.

In contrast, VGIT invests exclusively in U.S. Treasury securities. This pure government focus eliminates credit risk, but the trade-off is a lower yield and narrower sector diversification compared to IGIB.

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What this means for investors

VGIT and IGIB both invest in intermediate-term bonds, but understanding the difference between Treasuries and corporate bonds is crucial here. U.S. Treasury bonds are backed by the full faith and credit of the federal government. Essentially, the government promises to pay you back, making them the safest bonds available. Corporate bonds are issued by companies to raise money, and you're trusting that company to repay you. That extra risk is why corporate bonds pay higher interest rates.

IGIB's corporate bond portfolio delivers higher yield to compensate for company-specific risk, but during market stress, corporate bonds typically fall harder as investors worry about companies' ability to repay debt. VGIT's Treasury-only approach means you sacrifice some yield for that government guarantee. The size difference matters here too: VGIT's larger asset base provides better liquidity with tighter bid-ask spreads.

Choose VGIT if safety and stability are your priorities, especially for conservative portfolios or as a true safe haven during market turbulence. The lower yield is the price for sleeping soundly. Opt for IGIB if you're comfortable accepting corporate credit risk for higher income. For many investors, VGIT's Treasury backing is the simplest option because you're lending to the U.S. government rather than betting on corporate balance sheets.

Sara Appino has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.