Corporate bond ETFs hold baskets of investment grade corporate bonds and trade on an exchange like a stock. Each fund tracks an index screened by credit quality and maturity; a share of LQD, for example, represents a slice of the Markit iBoxx USD Liquid Investment Grade Index, which holds bonds of hundreds of large issuers. This guide compares the main funds by the index they track and the maturities they hold, explains how fund yields and durations should be compared, and shows how ETFs differ from individual bonds and from net lease real estate. For the market overview, see the investment grade bonds hub and the investment grade guide.
The appeal of an ETF is diversification, exchange liquidity, low cost, and no need to research and buy individual bonds. The main structural difference from an individual bond: the conventional corporate bond ETFs covered here have no maturity date. They keep rolling their holdings as bonds age out of the index, so the fund’s interest rate sensitivity stays roughly constant and there is no date on which the investor is repaid face value. Defined-maturity bond ETFs, which hold bonds maturing in one year and liquidate then, are a separate option; neither design guarantees the purchase price or a particular return.
The Core Investment Grade Corporate Bond ETF Lineup
The funds below are among the most widely held investment grade bond ETFs. Fund yields, durations, assets, and expense ratios change; compare them on the sponsor’s fund pages as of the same date.
| Ticker | Fund | Index tracked | Maturity focus |
|---|---|---|---|
| LQD | iShares iBoxx $ Investment Grade Corporate Bond ETF | Markit iBoxx USD Liquid Investment Grade Index | Investment grade corporates, 3 years and longer |
| VCIT | Vanguard Intermediate-Term Corporate Bond ETF | Bloomberg U.S. 5-10 Year Corporate Bond Index | 5 to 10 years |
| VCSH | Vanguard Short-Term Corporate Bond ETF | Bloomberg U.S. 1-5 Year Corporate Bond Index | 1 to 5 years |
| IGSB | iShares 1-5 Year Investment Grade Corporate Bond ETF | ICE BofA 1-5 Year US Corporate Index | 1 to 5 years |
| VCLT | Vanguard Long-Term Corporate Bond ETF | Bloomberg U.S. 10+ Year Corporate Bond Index | 10 years and longer |
| IGLB | iShares 10+ Year Investment Grade Corporate Bond ETF | ICE BofA 10+ Year US Corporate Index | 10 years and longer |
| AGG | iShares Core U.S. Aggregate Bond ETF | Bloomberg U.S. Aggregate Bond Index | Broad taxable investment grade market (Treasuries, mortgage-backed securities, corporates) |
| BND | Vanguard Total Bond Market ETF | Bloomberg U.S. Aggregate Float Adjusted Index | Broad taxable investment grade market |
Comparing yields correctly. Use the 30-day SEC yield, a standardized measure that reflects the yield of the fund’s holdings after expenses, for every fund as of the same date. Trailing distribution yields reflect past coupon payments and can differ a lot from the SEC yield, especially for funds holding older bonds bought at a discount; keep them in a separate column if you use them at all.
The Duration Trade-Off: Short, Intermediate, and Long
Every corporate bond ETF decision starts with duration, the approximate percentage price change for a one percentage point change in yields. A fund with a 6-year duration loses roughly 6% if yields rise one point and gains roughly 6% if they fall one point, before income. Longer funds usually yield more because longer bonds pay more for rate risk, though not always. The ICE BofA index yields by maturity show where the curve stands today; fund yields differ from these index figures.
| Maturity (ICE BofA US Corporate index) | Effective yield | Option-adjusted spread |
|---|---|---|
| 1 to 3 years | 5.34% | 58 bps |
| 3 to 5 years | 5.74% | 77 bps |
| 5 to 7 years | 5.94% | 89 bps |
| 7 to 10 years | 6.19% | 105 bps |
| 10 to 15 years | 6.38% | 102 bps |
| 15 years and longer | 6.65% | 103 bps |
ICE BofA US Corporate index maturity sub-indexes, effective yield and option-adjusted spread, from the Federal Reserve Bank of St. Louis (FRED), as of October 1, 2026. For reference, the 10-year Treasury yield was 5.24% on October 1, 2026. Updated each business day.
LQD vs VCIT: The Two Core Holdings
LQD, launched in July 2002, tracks the Markit iBoxx USD Liquid Investment Grade Index, which focuses on larger, more liquid bond issues with at least three years to maturity. VCIT, launched in November 2009, tracks the Bloomberg U.S. 5-10 Year Corporate Bond Index. Because LQD includes long bonds, its duration is longer than VCIT’s, so it gains more when yields fall and loses more when they rise; in 2022, when yields rose sharply, LQD’s worst quarter was a loss of 8.63% (April to June 2022), according to its prospectus, and the broader Bloomberg US Corporate Index lost about 15.8% for the year. LQD trades very heavily, which some institutions value for liquidity; VCIT is often chosen as a lower-cost intermediate holding. Check both funds’ current expense ratios and SEC yields before choosing.
Short-Term and Long-Term Funds
Short-term (VCSH, IGSB). Both hold investment grade corporates maturing in one to five years, VCSH tracking a Bloomberg index and IGSB an ICE BofA index. Their low duration makes them a common choice for money that may be needed within a few years.
Long-term (VCLT, IGLB). These hold corporates maturing in more than ten years. They carry the most interest rate risk and the largest swings in value; they suit long horizons and investors who can hold through a rate shock.
Aggregate funds (AGG, BND). These hold the broad taxable investment grade market, including Treasuries and mortgage-backed securities, with corporates as a minority share. They are a diversified core holding rather than a pure corporate credit position.
Bond ETFs vs Individual Bonds
The case for individual bonds is that they mature. If an issuer pays as promised and the bond is not called, an investor who holds a noncallable bond to maturity receives the coupons and face value, so the purchase price sets the yield on those promised cash flows. The realized compound return also depends on the rate at which coupons are reinvested, transaction costs, and taxes. A conventional ETF has no such end date; its value at any future point depends on rates and spreads at that time.
| Consideration | Individual bonds | Conventional bond ETFs |
|---|---|---|
| Maturity | Fixed date; issuer repays face value absent default | None; holdings roll |
| Return if held | Price paid sets the yield on promised cash flows; realized return also depends on reinvestment, calls, costs, taxes, and whether the issuer pays | Varies with rates, spreads, and fund turnover |
| Diversification | Requires many positions | Hundreds or thousands of bonds in one share |
| Liquidity | Over the counter; varies by issue | Exchange traded; the fund’s market price can differ from its net asset value in stressed markets |
| Cost | Dealer markup in the bid-ask spread | Expense ratio plus the ETF’s bid-ask spread |
| Best for | Matching a known future need | Diversification and smaller accounts |
Individual bonds avoid an ongoing expense ratio but cost more to trade in small sizes and require credit research and enough positions to diversify. Whether a portfolio of individual bonds beats a fund depends on security selection, costs, turnover, diversification, and the period measured; there is no reliable typical margin either way. Independent research services such as BondSavvy publish issue-level recommendations for investors who want to build their own portfolio.
Corporate Bond ETF Yields vs NNN Real Estate Cap Rates
A corporate bond ETF provides diversified income from many investment grade issuers. A net lease property provides rent from one tenant, and the tenant’s rating applies only if the rated company signs or guarantees the lease. The table compares the bond index yield for each tenant’s rating category with the median asking cap rate on its active listings.
| Tenant | S&P / Moody’s | Index yield (category) | Median asking cap rate (listings with a cap rate) | Spread |
|---|---|---|---|---|
| Dollar General Bonds vs. NNN analysis | BBB / Baa3 | 6.19% (BBB) | 7.00% (525) | +81 bps |
| CVS Bonds vs. NNN analysis | BBB / Baa3 | 6.19% (BBB) | 6.50% (149) | +31 bps |
| Starbucks Bonds vs. NNN analysis | BBB+ / Baa1 | 6.19% (BBB) | 5.75% (118) | −44 bps |
| AutoZone Bonds vs. NNN analysis | BBB / Baa1 | 6.19% (BBB) | 5.30% (28) | −89 bps |
| McDonald's Bonds vs. NNN analysis | BBB+ / Baa1 | 6.19% (BBB) | 4.00% (43) | −219 bps |
Showing 5 tenants. Index yield is the ICE BofA effective yield index for the tenant’s rating category (US Corporate AAA, AA, A or BBB index; US High Yield BB, single-B or CCC and lower index), using the S&P rating, or the Moody’s equivalent where S&P does not rate, from the Federal Reserve Bank of St. Louis (FRED), as of October 1, 2026. It is an index average, not a quote on the company’s own bonds. Median asking cap rate is the median of asking cap rates (stated, or computed from stated income and price when no rate is stated) on active listings InvestmentGrade.com tracks, listings last observed October 5, 2026; asking cap rates are not closed-sale cap rates. Spread is the median asking cap rate minus the index yield. Ratings are the agency ratings in our ratings database for the entity shown; the rating type (for example issuer, senior unsecured debt, long-term debt or revenue bond ratings) varies by company. The entity that signs or guarantees a given lease can differ, so confirm the lease obligor. Shaded rows are below investment grade. NR means the agency does not rate the entity; n/a means no verified rating is on file.
Spreads differ widely: Dollar General listings ask more than the BBB index yield, while McDonald’s listings, many of them ground leases, ask less. The real estate is illiquid and carries property and re-leasing risk, and it offers depreciation of the building and 1031 exchange deferral that bond funds cannot. See the bond-to-NNN spread table for every tenant.
Tax Efficiency and Distribution Structure
Corporate bond ETFs distribute income monthly, taxed as ordinary income at federal rates up to 37%, plus state tax and, for higher earners, the 3.8% net investment income tax. Three approaches improve after-tax results: hold taxable bond funds in tax-advantaged accounts; compare municipal bond funds such as MUB on a tax-equivalent basis; or, for investors who want real estate, use depreciation and 1031 exchanges on net lease property, keeping in mind passive loss limits and depreciation recapture on a taxable sale.
How to Choose the Right Corporate Bond ETF
- Time horizon. Money needed within a few years fits short funds; longer horizons can use intermediate or long funds.
- Tolerance for losses. Long funds can lose a double-digit percentage when yields rise sharply; avoid them if a drop would force a sale.
- Account type. Taxable bond funds are more efficient in tax-advantaged accounts.
- Position size. Smaller positions are usually best served by broad, low-cost funds; larger accounts can consider ladders of individual bonds or defined-maturity ETFs.
- Comparable data. Compare SEC yields, durations, and expense ratios from the sponsors on the same date.
Corporate Bond ETF Frequently Asked Questions
What is the best investment grade corporate bond ETF?
There is no single best fund. The choice depends on duration tolerance, account type, and cost. LQD offers broad investment grade corporate exposure with a long duration; VCIT focuses on intermediate maturities; VCSH and IGSB hold short maturities; VCLT and IGLB hold long maturities.
How do LQD and VCIT differ?
LQD tracks the Markit iBoxx USD Liquid Investment Grade Index, with bonds of three years and longer; VCIT tracks the Bloomberg U.S. 5-10 Year Corporate Bond Index. LQD has the longer duration, so it is more sensitive to interest rates. Compare current expense ratios and SEC yields on the sponsors’ sites.
Are corporate bond ETFs safe?
They are diversified, which keeps credit risk low, but they can lose value. In S&P’s 1981 to 2024 study the average one-year default rate for investment grade issuers was 0.08%. Interest rate risk is the bigger factor: the Bloomberg US Corporate Index lost about 15.8% in 2022 as yields rose.
Do corporate bond ETFs pay monthly?
Most major investment grade corporate bond ETFs, including LQD, VCIT, VCSH, IGSB, and VCLT, pay distributions monthly. The 30-day SEC yield is the standardized measure for comparing their income.
What is the difference between a bond ETF and individual bonds?
An individual bond has a maturity date when the issuer repays face value, absent default or a call. A conventional bond ETF has no maturity and keeps its rate sensitivity roughly constant. ETFs offer diversification and exchange liquidity; individual bonds can match a specific future need.
Is LQD or AGG better?
They do different jobs. LQD holds investment grade corporate bonds; AGG holds the broad taxable investment grade market, including Treasuries and mortgage-backed securities. LQD has more credit exposure and usually a higher yield; AGG is more diversified across bond types.
How do bond ETF yields compare with NNN cap rates?
It depends on the tenant. Today the median asking cap rate on Dollar General listings is 7.00% against a BBB index yield of 6.19% (spread +81 bps), while McDonald’s listings ask a median of 4.00%. Net lease adds property risk and illiquidity along with depreciation and 1031 deferral.
Related Bond Research
Educational content only. InvestmentGrade.com is a commercial real estate brokerage and educational publisher. We do not sell, broker, underwrite, or solicit any bonds, securities, or investment products. Yields, ratings, and prices referenced fluctuate continuously and are sourced from public market data as of the date noted. Nothing on this page constitutes investment advice, an offer to sell, or a solicitation to buy any security. Consult a licensed broker-dealer, registered investment advisor, or tax professional before making any investment decision. For SEC investor education, visit investor.gov.
