Bond ETFs are steadily taking market share from traditional bond mutual funds across the open-ended fund universe.
The shift, according to Morningstar analyst Daniel Sotiroff, underscores how bond ETFs are "eating into" the market.
While bonds themselves remain firmly established, the competitive battle is clearly playing out at the fund-structure level, where ETFs are increasingly displacing mutual funds as the preferred vehicle for fixed-income exposure.
Assets in U.S. bond ETFs have climbed sharply over the past decade, while many bond mutual funds have faced persistent outflows. Core ETFs such as the iShares Core U.S. Aggregate Bond ETF (NYSE:AGG) and the Vanguard Total Bond Market ETF (NASDAQ:BND) have become the go-to holdings for advisors and institutions, often replacing traditional bond mutual funds in model portfolios.
More than 2,000 institutional investors that have filed for purchase with the Securities and Exchange Commission (SEC) for AGG, per data aggregated by Fintel. Additionally, according to Marketbeat, BND has seen 1500 institutional buyers in the last 12 months (as of Monday).
Straightforward Appeal
Bond ETFs offer intraday liquidity, transparent pricing and typically lower fees than comparable mutual funds. For advisors, they are easier to trade, rebalance and combine with equity ETFs in portfolio construction. For institutions, ETFs provide a flexible way to adjust duration and credit exposure without the operational friction of mutual fund flows.
The shift is particularly evident in credit. High-yield ETFs like the iShares iBoxx $ High Yield Corporate Bond ETF (NYSE:HYG) now attract flows that once would have gone into high-yield mutual funds. In 2025, the fund gained $4.8 billion in inflows, according to ETFdb.
Similarly, the iShares iBoxx $ Investment Grade Corporate Bond ETF (NYSE:LQD) has become a widely used alternative to investment-grade corporate bond funds, offering broad exposure with greater liquidity and transparency.
Actively managed bond ETFs are accelerating the transition. Asset managers, including PIMCO and JPMorgan, have expanded their active fixed-income ETF lineups, increasingly positioning them as substitutes for legacy bond mutual funds. These products combine active management with ETF features such as intraday trading and, in many cases, lower expense ratios, directly challenging the value proposition of traditional open-ended bond funds.
The result is a gradual but meaningful reshaping of the fixed-income fund landscape. ETFs are capturing a growing share of new flows, particularly in core and credit strategies. Over time, that flow dynamic matters more than legacy asset totals.
As Sotiroff's observation suggests, the rise of bond ETFs is less about disrupting the bond market itself and more about redefining how investors access it. In the open-ended fund market, ETFs are no longer the alternative. They are becoming the default.
