The Federal Reserve indicated a more tempered approach to interest rate cuts in 2025.

That’s according to minutes from the Fed’s December meeting, which were released on Wednesday, Jan. 8.

Investor interest shifted toward treasury bonds, as the 10-year yield briefly touched 4.73% on Wednesday, amid resurfacing inflation fears and anticipation around potential tariffs and tax policies.

Fixed-income exchange-traded funds (ETFs) can help investors get exposure to bonds. This is thanks to the stability and predictable income opportunity amid equity market volatility that they hold.

Here are three standout ETFs poised to benefit:

• iShares iBoxx $ Investment Grade Corporate Bond ETF (NYSE:LQD) offers diversified exposure to investment-grade corporate bonds, which are less likely to default during economic uncertainty. The ETF boasts a weighted average maturity of 12.94 years but includes bonds with varying maturities to balance risk. Its 30-day SEC yield is 5.4%, and its expense ratio is 0.14%, making it a cost-effective option.

• Vanguard Short-Term Bond ETF (NYSE:BSV) is designed for stability and focuses on short-duration U.S. Treasury and investment-grade corporate bonds, with an average maturity of just 2.8 years. Music to the ears for risk-averse investors looking to shield themselves from rate volatility. The fund’s 30-day SEC yield is approximately 4.4%, with minimal sensitivity to interest rate changes. A low expense ratio of 0.04% makes it even more attractive.

• Vanguard Total Bond Market ETF (NASDAQ:BND) offers comprehensive exposure to the entire U.S. bond market, including Treasuries, mortgage-backed securities, and investment-grade corporate bonds. The ETF's 30-day SEC yield stands at 4.55%, providing a steady income stream. An expense ratio of 0.03% is another point to note. Additionally, the ETF's liquidity and resilience during past crises, such as the 2020 pandemic sell-off, makes it a reliable long-term investment choice.

Why Bond Funds?

The Fed's cautious message supports a longer-term case for bond ETFs.

Short-duration bond ETFs are less sensitive to rate fluctuations and can offer better returns than cash or savings accounts while limiting interest rate risk.

Similarly, investment-grade corporate bond ETFs are a sweet spot for yield-seeking investors. These ETFs balance risk and reward by offering exposure to highly rated corporate debt that typically performs well in uncertain economic conditions.

These apart, ultra-short bond ETFs like the iShares 0-3 Month Treasury Bond ETF (NYSE:SGOV) could also gain traction as cash alternatives.

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