Bond Market Sell-Off: 3 of the Best ETFs to Buy Right Now

A conventional rule of thumb in investing is that rising interest rates are bad for stocks. When interest rates go up, that means bond yields go up -- which means bond investors can earn higher income from buying bonds at today's rates. This can reduce demand for stocks and drive down share prices.

The bond market is going through a rapid sell-off, driving up bond yields. The 10-year U.S. Treasury bond yield is over 5%, and the Fed is signaling more short-term rate hikes. We could be in for an era of higher-for-longer interest rates, and that could put downward pressure on stock prices.

However, rising interest rates aren't always bad for all stocks. Some sectors of the economy tend to do better during times of higher interest rates. Let's look at three exchange-traded funds (ETFs) that might be the best to buy for rising interest rates into 2027 -- and see why they could be good long-term choices for your portfolio.

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Vanguard Financials ETF (VFH): 424 financial stocks

Rising interest rates can be good for financial stocks, like banks. That's because when interest rates go higher, banks can make more money by charging higher interest rates on loans, but without paying too much higher interest on deposits. This helps banks earn higher net interest margin.

An ETF that might benefit from this trend toward higher interest rates is the Vanguard Financials ETF (NYSEMKT: VFH). This fund owns 424 stocks representing a wide range of the financial sector, including banks, investment banks, regional banks, and insurance companies. VFH has delivered average annual returns of about 12.5% for the past 10 years and 9.2% for the past five years.

Vanguard Energy ETF (VDE): 111 stocks in oil and gas industries

Energy stocks have done extremely well in 2026, in large part due to higher oil and gas prices because of global disruptions from the Iran war. But higher interest rates could help energy stocks to continue this momentum. Energy is an essential product, a "must-have" that people and businesses tend to keep spending on, no matter what happens to interest rates.

The Vanguard Energy ETF (NYSEMKT: VDE) is a low-cost index fund that holds 111 stocks of companies involved mainly in oil and gas exploration and production. VDE has delivered average annual returns of about 9.6% for the past 10 years, 22.5% for the past five years, and an impressive 40.5% in the past year.

ProShares Equities for Rising Rates ETF (EQRR): 52 stocks with histories of outperformance

What if you want to get aggressive and invest in a proactive way to try to capitalize on rising interest rates? ProShares offers a dedicated ETF designed for that goal. The ProShares Equities for Rising Rates ETF (NASDAQ: EQRR) holds 52 U.S. large-cap stocks that are from sectors with strong correlations to 10-year U.S. Treasury yields, and that have tended to outperform during times of rising interest rates.

This fund's portfolio includes technology stocks (36.25% of the fund), energy stocks (21.6%), financials (18.8%), consumer discretionary (14.8%), and telecommunications (8.6%). The ETF's top five stock holdings are Marathon Petroleum (4.3% of the fund), Valero Energy (4.13%), CrowdStrike, Zscaler (3.5%), and Chevron (3.3%).

EQRR has delivered average annual returns of about 14.9% for the past five years, and 40.7% in the past year.

How these ETFs performed during rising rates in 2022

Many investors likely remember 2022, which was a time of fast-rising interest rates and the most recent yearlong bear market. That year, the S&P 500 index declined by about 18%. Here's how the Vanguard Financials ETF, Vanguard Energy ETF, and ProShares Equities for Rising Rates ETF performed in 2022 versus the S&P 500:

VDE Total Return Level data by YCharts.

All three of these ETFs beat the S&P 500 in the rising-interest-rate environment of 2022. The energy stocks of VDE did best, with a nearly 63% total return that year, while EQRR outperformed the S&P 500 with a modest 2.3% total return. VFH was negative on the year, but still did better than the S&P 500.

There's no guarantee that any of these funds will outperform if rates keep rising. However, this recent history from 2022's higher rates could give a clue to how these stock ETFs will respond to additional interest rate increases by the end of 2026 or into 2027.

Ben Gran has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Chevron, CrowdStrike, and Zscaler. The Motley Fool has a disclosure policy.