Best bond ETFs: LQD, HYG and TLT cost more than the funds beside them
iShares' high-yield fund HYG charges 0.49% and is down 0.3% this year through Thursday, October 1, against a 0.05% fee for State Street's broader SPHY.
Key takeaways
Three heavily traded bond funds charge at least three times the fee of a cheaper fund beside them. This year, that extra fee did not buy a clearly better result.
The 10-year Treasury yield was 4.18% on Wednesday, December 31, 2025 and 5.24% on Thursday, October 1. Over that stretch, longer government and investment-grade funds are down. The high-yield funds are within half a percentage point of unchanged, and the bill fund is up.
Returns in the table are total returns, with distributions reinvested, from the final close of 2025 through Thursday. Our grade compares a fund only with others that make the same promise, and the fee counts more than any other part of it.
Fund yields, durations and 30-day median trading spreads later in the piece are the issuers' figures from Monday, September 28 through Wednesday, September 30.
The longest funds fell the most, and the fee does not follow that order.
One fund for the bond sleeve
If the job is one fund for the bond part of a portfolio, use iShares Core U.S. Aggregate Bond ETF, AGG. It tracks a broad index of investment-grade U.S. bonds. Investment grade means the safer rating tiers.
The fund charges 0.03%, which is $3 a year on $10,000. Assets are $135.9 billion.
The biggest weights go to the biggest borrowers. At the end of June, Treasuries were 46% of the fund and bonds backed by pools of home mortgages were 23%. A total-bond fund is mostly government-backed debt, not an even mix of every kind of bond.
Its 30-day SEC yield, a standardized yield after fees, was 5.02%. Effective duration, the usual measure of how far the price moves when yields change, was 5.7 years.
State Street's aggregate-bond fund, SPAB, tracks the same index at the same 0.03%. Schwab's aggregate-bond fund, SCHZ, also charges 0.03%, as does Vanguard's total-bond fund, BND, which tracks a different version of that index. The fee will not choose among them.
AGG ranks first of 117 aggregate-bond funds on our grade. SPAB is second, SCHZ third and BND fourth. AGG also ranks first in that group on trading, which covers volume and how close the share price stays to the value of the bonds.
The liquid ticker costs more
USIG, the iShares Broad USD Investment Grade Corporate Bond ETF, tracks the ICE BofA US Corporate Index. It holds 11,585 bonds and charges 0.04%, and about $100 million of shares trade on a typical day. Duration was 6.1 years, and the 30-day SEC yield was 5.83%.
LQD, iShares' more heavily traded investment-grade company-bond fund, tracks the iBoxx USD Liquid Investment Grade Index and holds 3,177 bonds. It charges 0.14%, which is $10 a year more on $10,000 than USIG, and about $2.9 billion of shares trade on a typical day.
That volume is what active traders and large institutions use when they need to move money in a day. Duration was 7.5 years, against 6.1 for USIG, and the 30-day SEC yield was 5.97%. The extra fee comes with longer bonds.
USIG scores 91 out of 100 on our grade and ranks first of 49 investment-grade corporate funds. LQD scores 81 and ranks fifth. Both are A's, though USIG ranks second in that group on trading and LQD ranks fourth.
The 30-day median spread, the typical gap between the buying and selling price, was 0.02% for USIG and 0.01% for LQD. That is 0.01 percentage point when you trade, against a fee gap of 0.10 percentage point a year. A holding you leave alone does not use LQD's extra volume.
High-yield company bonds carry a larger fee gap. These bonds are rated below investment grade. They pay more because repayment is less certain.
SPHY, State Street's portfolio high-yield fund, tracks the ICE BofA US High Yield Index and charges 0.05%, with about $126 million of shares trading on a typical day. HYG, iShares' liquid high-yield fund, tracks the iBoxx USD Liquid High Yield Index and charges 0.49%. That is 0.44 percentage points more, or $44 a year on $10,000, and about $2.8 billion of its shares trade on a typical day.
This year HYG finished ahead, at -0.3% against SPHY's -0.5%. HYG's share price fell 4.6%, and the distributions did most of the repair.
Over the twelve months through Thursday the order flips: SPHY is up 1.2%, and HYG is up 0.7%.
Only SPHY of these four is up over twelve months
One window settles nothing. The fee is what you pay again next year.
SPHY's 30-day median spread was 0.04%, against 0.01% for HYG. The extra 0.03 percentage point is $3 on a $10,000 trade, paid once. The extra fee is $44 every year.
SPHY ranks first of 85 high-yield funds on our grade. HYG ranks 25th, and the fee is what holds that grade down.
Bills, tax-free bonds, and the long bond
The bill fund is the one that made money. SGOV holds Treasury bills with three months or less left, and effective duration was 0.11 years. The share price is almost unchanged since the start of the year, so the 2.4% total return is the interest.
The fund charges 0.09%, holds $112.2 billion, and about $2.1 billion of shares trade on a typical day.
Vanguard's bill fund, VBIL, charges 0.06% for the same maturity band and has $11.4 billion. It has been listed only since February 2025. Either fund does the job. The fee gap is $3 a year on $10,000.
VTEB, Vanguard's tax-exempt bond fund, charges 0.03%. At least 80% of the portfolio is in bonds whose interest is exempt from U.S. federal income tax and the federal alternative minimum tax. The 30-day SEC yield was 4.16%.
Before federal tax, 4.16% is lower than AGG's 5.02%. On the yields alone, they match at a U.S. federal rate of about 17%. A state may still tax bonds issued somewhere else.
TLT holds Treasury bonds with more than 20 years left and tracks the ICE US Treasury 20+ Year Bond Index. It charges 0.15%, or $15 a year on $10,000, and about $2.4 billion of shares change hands on a typical day. Effective duration was 14.6 years.
The share price is down 10.8% this year, and distributions narrowed the loss to 8.1%. On Thursday the 30-year Treasury yielded 5.61%, 0.37 percentage points more than the 10-year, the extra yield set against those 14.6 years.
Vanguard's long-Treasury fund, VGLT, charges 0.03% and tracks the Bloomberg U.S. Long Treasury Bond Index, which starts at 10 years remaining, not 20. It is down 7.4% this year. On our grade it ranks first of 11 long-Treasury funds, an A.
TLT ranks fourth in that group, a B, and the fee is what holds it down. It still ranks first on trading. TLT's 30-day median spread was 0.01%, against 0.02% for VGLT.
A buyer who wants bonds with more than 20 years left does not get them by switching to the cheaper fund.
If you are not moving a large amount in a single day, hold the cheaper fund that owns the bonds you meant to buy. The wider spread is one to three hundredths of a percentage point, paid once. The higher fee on LQD, HYG or TLT is charged every year, and on LQD and TLT the bonds are longer as well.
ETFs in this story
Frequently asked questions
How much more do LQD, HYG and TLT charge?
LQD charges 0.14% against 0.04% for USIG, HYG charges 0.49% against 0.05% for SPHY, and TLT charges 0.15% against 0.03% for VGLT.
Did the higher fee buy a better return this year?
The extra fee did not buy a clearly better result: LQD is down 4.5% against USIG's 3.1% loss, TLT is down 8.1% against VGLT's 7.4% loss, and HYG's -0.3% finished just ahead of SPHY's -0.5%.
Do the cheaper funds own the same bonds?
USIG holds 11,585 bonds against LQD's 3,177 and a shorter duration, SPHY tracks a broad high-yield index rather than HYG's liquid one, and VGLT starts at 10 years left rather than more than 20.
Does a tighter spread offset the higher fee?
The wider spread is one to three hundredths of a percentage point, paid once, while the higher fee on LQD, HYG or TLT is charged every year.
