Top 3 Vanguard Bond ETF Picks for 2026

Fixed income has had a relatively good year in 2025. After a miserable 2022 bear market that saw long-term corporates and Treasuries fall more than 30% from peak to valley, bonds appear to be strengthening again. The U.S. economy continues to show resilience, and the Fed appears ready to keep lowering rates in 2026.

But it's not a clear path. The inflation rate in the U.S. is still 3%, and private sector job growth has largely stagnated. That means yields at the long end of the curve, which tend to be more economically sensitive and less directly affected by the Fed, could go in either direction.

Given this mix of conditions, there are still three Vanguard bond exchange-traded funds (ETFs) that I like heading into the new year.

Vanguard High-Yield Active ETF

The Vanguard High-Yield Active ETF (NYSEMKT: VGHY) is a surprise entrant into the Vanguard lineup, given its decades-long conservative investment philosophy. Nonetheless, Vanguard is in the junk bond business, and that shapes up nicely for 2026.

The case for junk bonds doing well again in 2026 is simple:

• The Fed currently plans on cutting rates further over the next 12 months, which should provide a tailwind for bonds in general.
• For calendar year 2025, S&P 500 companies are forecast to grow earnings by 12% and revenues by 7%. Strong financial results should help reduce default rates and support lower-quality issuers.
• Credit spreads remain near historically low levels, suggesting that investors see little stress in the credit markets right now.

All these factors point to another potentially good year for high-yield bonds. As long as credit pressures remain contained, VGHY could be poised to outperform.

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Vanguard Intermediate-Term Corporate Bond ETF

The Vanguard Intermediate-Term Corporate Bond ETF (NASDAQ: VCIT) turned out to be one of Vanguard's best-performing bond funds this year (up more than 9% as of Dec. 5), and could be set up for a repeat in 2026. The case for VCIT is similar to the one I just laid out for VGHY.

The bond market is showing few signs of problems at the moment. The Fed is ending its quantitative tightening program and looking to lower interest rates over the next several months. That should increase liquidity in the system and ease overall conditions. With added liquidity, companies should be able to gain greater access to the credit markets, and improve their ability to service existing debt in the meantime.

That could put investment-grade corporate bonds in the sweet spot. Even if yields don't move meaningfully lower, the 4.8% yield currently being offered by the fund should still offer a nice, steady income stream.

Vanguard Emerging Markets Government Bond ETF

The Vanguard Emerging Markets Government Bond ETF (NASDAQ: VWOB) is on a roll relative to U.S. Treasuries. After struggling mightily in 2022, it's on pace to outperform the Vanguard Intermediate-Term Treasury ETF for the third consecutive year. While it sounds easy to just pick last year's winner, there's a strong case for why there could be more gains ahead.

The dollar is one of the larger factors in international bond returns. The Fed is expected to lower rates, while other global central banks appear to be at the end of their rate-cutting cycles. That could lower the value of the dollar as interest rate differentials shrink and U.S. debt looks comparatively less attractive.

2025 was a year where we saw some of the inherent value of emerging market securities finally get unlocked. Conditions look favorable for continuing the run in 2026.

Global interest rates have risen far enough that fixed income should at least be a consideration again in diversified portfolios. The days of zero interest rates are gone, and longer-duration bonds could be setting up for a nice year ahead.

David Dierking has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.