Bond ETF

A bond ETF is an exchange traded fund that holds a portfolio of bonds, such as government bonds, corporate bonds, or municipal bonds, and trades on a stock exchange throughout the day like a share of stock. It gives investors exposure to the bond market without having to buy individual bonds directly, which can require large minimum purchases and are often harder to trade than stocks.

Most bond ETFs track an index, holding a basket of bonds meant to represent a specific segment of the bond market, such as short-term Treasuries, high yield corporate debt, or investment grade corporate bonds. Unlike an individual bond, which has a fixed maturity date and returns its full principal if held to that date, a bond ETF holds many bonds with staggered maturities and continuously replaces bonds as they mature, so the fund itself never matures and its price can fluctuate indefinitely with interest rates and credit conditions.

Bond ETFs pay out the interest collected from their underlying bonds to shareholders, usually on a monthly basis, and their prices tend to move inversely with interest rates, since bond prices fall as rates rise. They give investors an easy way to add fixed income exposure to a portfolio with the same intraday trading and transparency as any other ETF.