5 Great Fixed-Income Funds to Buy for 2025 | Investing

After enduring historically steep losses in 2022 as inflation surged and interest rates climbed, bond investors enjoyed a reprieve in the following years as yields became more attractive.

That tailwind may now be fading, especially for those holding shorter-maturity fixed-income funds. The Federal Reserve cut rates in both September and October by 25 basis points, or 0.25 percentage point each, bringing the federal funds target range down to 3.75% to 4%.

As a result, the brief window where short-term bonds offered yields of about 5% with minimal risk has closed. To achieve similar levels of income now, fixed-income investors will need to accept greater credit risk. In practice, that could mean targeting BBB-rated bonds instead of A- or AA-rated issues, or venturing into BB- and lower-rated junk bonds that offer elevated yields but higher default risk.

One way to help balance these risks is investing in bonds through diversified, open-ended investment vehicles. Both bond mutual funds and exchange-traded funds (ETFs) provide professional management, transparency and regular monthly distributions.

“The main benefit of bond funds for investors is convenience,” says Chris Tidmore, senior manager at Vanguard’s Investment Advisory Research Center. “Bond funds offer significant time savings over building and managing portfolios of individual bonds yourself and allow investors to build a broadly diversified bond portfolio with only a few funds.”

Mutual funds are often available through employer-sponsored 401(k) plans, while ETFs offer flexibility and intraday liquidity for self-directed investors using brokerage accounts.

“Given the higher risks and costs associated with portfolios of individual bonds, and the time they take to manage, most investors are better served by low-cost mutual funds and ETFs,” Tidmore says. “This is particularly true in the case of municipal and corporate bonds, which are less liquid and harder to purchase than Treasury bonds.”

Here are five great fixed-income mutual funds and ETFs to buy in 2025:

Vanguard Core-Plus Bond Fund Investor Shares (VCPIX)

One of the simplest ways to boost yield potential in a bond portfolio is by choosing a core-plus bond strategy. The “core” portion typically consists of investment-grade Treasurys and corporate bonds. The “plus” component allows managers to venture into higher-yielding segments such as junk bonds, emerging-market debt or other non-traditional fixed-income assets.

VCPIX follows this approach. Instead of tracking an index, the manager actively selects bonds based on sector outlook, duration and credit profile. The fund can hold everything from Treasurys and agency mortgage-backed securities to high-yield and foreign bonds. This flexibility supports a 4.3% 30-day SEC yield but comes with a higher 0.3% expense ratio. VCPIX requires a $3,000 minimum investment.

Vanguard High-Yield Tax-Exempt Fund Investor Shares (VWAHX)

High yields and tax efficiency don’t often go together, but VWAHX manages to deliver both. Municipal bonds are generally exempt from federal income tax, but they’re often issued by financially strong municipalities with high credit ratings. To enhance returns, this fund takes a different approach by allocating up to 20% of assets to lower-rated, non-investment-grade municipal bonds.

By taking on additional credit risk, VWAHX offers a 4.2% 30-day SEC yield, which is considered fairly strong for a municipal bond fund. Importantly, that yield is exempt from federal income tax, making it especially attractive for investors in higher tax brackets. For those seeking optimized after-tax income rather than pure yield, this fund can outperform taxable bond options like VCPIX on a net basis.

Global X Investment Grade Corporate Bond ETF (GXIG)

“Yields offered through investment-grade corporate and government bond securities have indeed been scaled back over the last year, but the income potential provided by some of these instruments is still trading at generous levels relative to the last 15 to 20 years,” says Robert Scrudato, director of options and income research at Global X ETFs. For example, GXIG still pays a 4.8% 30-day SEC yield.

This actively managed bond ETF focuses on investment-grade corporate bonds. By doing so, GXIG is able to deliver a yield pick-up over Treasury-only bond funds of an equivalent maturity. It is also one of the more affordable actively managed fixed-income ETFs thanks to a competitive 0.14% expense ratio. However, tax efficiency isn’t the best, given distributions are largely categorized as ordinary income.

BondBloxx CCC Rated USD High Yield Corporate Bond ETF (XCCC)

“Within the high-yield corporate bond category, the income from CCC-rated corporate bonds has averaged 10% annually over the past 20 years,” explains JoAnne Bianco, partner and senior investment strategist at BondBloxx. “The resilient U.S. economy continues to support U.S. high-yield credit, including the CCC rating category.” XCCC is a unique bond ETF targeting this segment.

The bonds in XCCC are significantly riskier than average, but they make up for it with a high 10.7% 30-day SEC yield. “A key strength of XCCC is its broad diversification across industries and issuers, helping reduce the risk of investing in individual high-yield bonds,” Bianco says. This is aided by a 2% cap on individual issuer exposure, which is intended to help mitigate the effects of contagion during a potential credit crisis.

BondBloxx JP Morgan USD Emerging Markets 1-10 Year Bond ETF (XEMD)

“Emerging-market sovereign debt funds have outperformed most fixed-income categories in 2025, due to factors including attractive yields, the weaker U.S. dollar and improving fundamentals for emerging market economies,” Bianco explains. “XEMD was launched to provide access to emerging-market sovereign debt exposure with lower interest rate risk, reflecting its 1-to-10-year cap on maturities.”

This ETF offers international diversification benefits for bond investors with no currency risk, unlike some competing emerging-market ETFs. Countries represented in XEMD’s portfolio include Saudi Arabia, Turkey, Mexico and Argentina. XEMD charges a 0.29% expense ratio and is also fairly liquid, with a 0.07% 30-day median bid-ask spread. Investors can currently expect a 5.4% 30-day SEC yield.