Portfolio perspectives

Target Maturity ETFs: Navigating uncertainty when certainty matters most

In this edition

• Market volatility following multiple geopolitical shocks in the first half of 2026 has shifted rate expectations and highlighted the challenge of positioning portfolios during unstable macro conditions.
• Advisors need precise tools that can deliver permanence and definition to clients amidst today’s market volatility while staying aligned to future spending needs.
• Target Maturity ETFs offer a modern solution by combining the structure of individual bond ladders with the diversification, liquidity, and operational ease of traditional ETFs.

An evolving fixed income backdrop

Following an extended period of unprecedentedly low interest rates, aggressive Fed tightening beginning in 2022 drove an inverted yield curve. The curve has since regained an upward slope, but geopolitical shocks in the first half of 2026—including the Iran conflict—have once again shifted rate expectations and added uncertainty to portfolio positioning.

In this rate environment, we believe the belly of the curve represents an attractive sweet spot, offering a balance of stable yield and portfolio ballast. As uncertainty remains, though, clients are looking for stability and definition in their fixed income allocations. Now is an opportune time to reassess fixed income positioning and consider how portfolio tools, like target maturity ETFs, can help bridge the gap.

Figure 1: The term premium has returned as the yield curve has steepened

Past performance is not a guarantee of future returns. The performance of an index is not an exact representation of any particular investment, as you cannot invest directly in an index.

Source: FactSet, as of dates noted.​

Navigating uncertainty when certainty matters most

This uncertainty around the path of interest rates, inflation, and monetary policy continues to shape portfolio decisions. For advisors working with clients with known spending needs, such as education funding or purchasing a property, fixed income is not just about yield. It is about knowing when money will be available, how income is generated, and whether the portfolio is aligned to that future goal.

Individual bond ladders have long helped advisors deliver that structure. Their appeal is straightforward: defined maturity dates, return of principal, and a clear connection to future spending needs. Yet achieving it often requires significant time and operational effort. Building and maintaining ladders, managing reinvestment as bonds mature, and constructing diversified allocations across issuers are resource-intensive.

At the same time, traditional bond funds and ETFs offer diversification and ease of implementation—but sacrifice the predictability and control that make individual bonds appealing. The result is a persistent challenge in portfolio construction.

Product innovation for fixed income portfolios

Target maturity ETFs (TMEs) combine the most valued attributes of individual bonds and ETFs. By holding bonds that mature in a defined year and returning principal as the portfolio winds down, they preserve the structural clarity of individual bonds while introducing diversification, liquidity, and operational ease.

Advisors and clients are taking notice, with TME assets growing more than 200% over the past five years to roughly $70 billion¹. Across thousands of portfolios reviewed by our Product and Portfolio Strategy team over the same period, advisor utilization of TMEs has doubled. And advisors who use TMEs tend to do so with conviction, allocating roughly half of their fixed income sleeve to the strategy.

Key benefits of TMEs:

Permanence and definition

Similar to individual bond ladders, TME duration naturally declines as maturity approaches, improving alignment with known time horizons.

Diversification

Bond ladders may offer control, but they often rely on a limited number of holdings that can increase issuer-specific risk. TMEs provide diversified exposure within each maturity year, helping reduce the impact of any single issuer and supporting return potential and more consistent outcomes.

Liquidity

Individual bonds can be harder and more costly to trade. ETF bid-ask spreads are typically lower than the underlying bond basket, reflecting the trading efficiencies of the ETF structure and enabling more cost-effective portfolio implementation.

Figure 2: Target maturity ETFs can offer more efficient trading than individual bonds

Source: Vanguard calculations using data from Intercontinental Exchange (ICE).

Notes: Triangles show the average estimated ETF bid-ask spread for each maturity year of a corporate bond target maturity ETF represented by the ICE 20XX Maturity U.S. Corporate Constrained Index. Dots represent the estimated weighted average bid-ask spread of the underlying constituents of each ETF (i.e., basket spread), where individual bid-ask spreads are weighted by each bond’s proportional market value. Data is as of October 2025 and based on U.S. corporate investment-grade bonds that belong to ICE BofA U.S. Corporate Index and subdivided into each unique maturity index. For example, the 2027 spreads are calculated using bonds included in the ICE 2027 Maturity Index, the 2028 spreads using bonds included in the ICE 2028 Maturity Index, and so on. The average basket spread is the weighted average bid-ask spread of everything in the respective index (i.e., “the basket”). The estimated average ETF spread is calculated using Capital Market’s assumptions using prior experience with ETF spreads being less than the basket spreads historically.

Operational ease

Building and maintaining individual ladders takes time. Advisors must source bonds, monitor credit quality, manage maturities, and reinvest proceeds. TMEs simplify that work by packaging each maturity year into a single ETF.

Bringing it together

The uncertainty around the path of interest rates, inflation, and monetary policy will continue to shape portfolio decisions. TMEs can provide a practical way to implement precise duration targeting, which can help support portfolio stability and provide greater definition to end clients. They combine the planning value of defined maturities with the scale, liquidity, and simplicity of an ETF.

Vanguard now offers target maturity ETFs through our BondBuilder™ suite, designed to help advisors build laddered portfolios aligned to specific time horizons. Learn more in our BondBuilder ETF overview.

The current BondBuilder ETF lineup spans a range of maturity years, enabling advisors to implement these strategies with greater precision:

Vanguard BondBuilder Target Maturity ETFs