Fixed income

Bond ladders

Vanguard BondBuilder™ Target Maturity ETFs help build diversified custom bond ladders for client spending goals.

Photo of a young couple together sitting in their home perusing financial paperwork while their financial advisor sits across from them.

Overview

Why use bond ladder strategies

Bond ladders can help you match cash flows with future goals. Typically, they combine individual bonds that mature sequentially year-to-year, freeing up cash around liquidity events, and replacing maturing bonds with ones that will mature several years in the future. A bond ladder can also help mitigate interest-rate risk by diversifying exposure across maturities.

 

Benefits of bond ladders

By using bond ladders, advisors can customize client portfolios. Investors benefit from greater precision when seeking to have cash on hand when expenses are due; portfolios benefit from less reinvestment risk. Should rates rise, maturing bonds can be reinvested at higher yields while the price of remaining bonds move closer to par. If rates fall, longer-term bonds can benefit from locking in higher rates.

Illustration displays three potential advantages of bond laddering for fixed income investors: expense planning, steadier yields, and monthly income. The image shows a calculator and credit cards representing expense planning and highlighting the potential to align cash availability with upcoming spending needs for investors who make use of bond laddering. Next, the image shows a clipboard with a percentage symbol illustrating steadier yields, reinforcing the idea that bond laddering can help manage interest-rate changes. The image also shows a calendar with a marked date symbolizing monthly income, emphasizing consistently scheduled distributions associated with bond investing and bond laddering in a fund or ETF.

Drawbacks of bond laddering using individual bonds

Building ladders or running a separately managed account (SMA) with individual bonds can be complex, prohibitively expensive, and risky. Individual bonds can be hard to buy and sell when needed. Their high cost makes it difficult to buy enough bonds to deeply diversify a ladder. This creates greater risk exposure in the event of a credit downgrade, default, or market shock. Also, identifying the right bonds is time consuming for advisors.

 

A potentially better way of bond laddering

 Build bond ladders with our institutional quality1 fixed income ETFs

Addressing the shortcomings of bond laddering with individual bonds is what’s behind Vanguard’s BondBuilderTM suite, known broadly as TMEs. Compared to SMAs and individual bonds, TMEs can enable advisors to:

  • Get time back for more value-add activities.
  • Diversify exposure for a lower cost.
  • Access greater liquidity with the power of ETFs.

BondBuilder TMEs leverage Vanguard’s deep bench of fixed income experts and indexing capabilities. They aim to maintain the same cash-planning precision you get laddering with individual bonds, and with the benefits of low-cost and liquid Vanguard ETFs®. BondBuilder TMEs are priced 20% lower than the competition, with an estimated expense ratio of 0.08%,2 and have about 15% greater market coverage than competing products, enhancing diversification benefits.3

Broadly, they enable goals-based planning and liquidity management across client portfolios in new, client-friendly ways. Advisors can also use our BondBuilder Model Portfolios to help free up time for higher-value functions.

Use cases

How to build bond ladders

First, identify the investment goal and time horizon for the bond ladder

Use TMEs to address financial goals through bond laddering. You can use either a perpetual bond ladder that constantly cycles between a set of years or a defined maturity bond ladder by aligning the target year of a client’s goal with the maturity year of the ETF. Examples of this sort of goals-based planning could apply to college expenses, business expansions, wedding expenses, and retirement income.

Illustration shows how fund-maturity selection aligns with educational expenses over time. The heading, “Fund maturity selection” is above a series of boxes laid out from left to right, each representing a specific target maturity bond ETF that matures in a specific year. The ETFs are VBCA, which matures in 2027; VBCB, which matures in 2028; VBCC, which matures in 2029; VBCD, which matures in 2030; VBCE, which matures in 2031; and VBCF, which matures in 2032. Below the ETFs is a header, “Distribution of fund assets”, which links each ETF with a specific expense in its maturity year. VBCA is linked to freshman-year college expenses; VBCB to sophomore-year college expenses; VBCC to junior-year college expenses; VBCD to senior-year college expenses; VBCE to first year of graduate school expenses; and VBCF to second year of graduate school expenses.

Source: Vanguard

Then, select the types of investments to use in your bond ladder

Investors often use the most liquid types of investments, such as TMEs, high-quality corporate bonds, or Treasuries, to build their ladders. Vanguard’s BondBuilder TME suite includes 10 investment-grade corporate bond ETFs, each aligned to a specific year when it matures and returns principal. Once one matures, a new ETF will replace it that’s designed to mature about 10 years later.

Illustration describes how the lineup of Vanguard’s 10 target date maturity ETFs will evolve over time when specific ETFs among the 10 begin to mature and cease to exist. The image first shows the 10 ETFs that launched initially and which together span a maturity spectrum of one year to 10 years. The image shows that when VBCA matures at the end of 2027, it will be replaced by a new ETF that will mature about 10 years later in late 2037. The image then shows that when VBCB matures at the end of 2028, it will be replaced by a new ETF that will mature about 10 years later in late 2038.

* New fund ticker to be determined.

Source: Vanguard.

Features and benefits of BondBuilder ETF bond ladders

The behavior of a bond

  • Designed to provide monthly income distributions over the life of the ETF.
  • Average duration declines as maturity approaches, reducing interest-rate risk and volatility.
  • ETF liquidates in its final year and distributes a final payment, which is similar to a bond but instead based on the TME's net asset value (NAV).


The power of Vanguard ETFs®

Like traditional bond funds, TMEs are diversified portfolios of bonds, so they may experience less volatility than single bonds and may have lower default risk.

Investors can get liquidity out of the ETF should they need it since TMEs trade on an exchange, something not as easily done with individual bonds. This makes it easier to reinvest coupon payments or to make changes to the bond ladder.

BondBuilder TMEs track indexes with set maturities, declining duration, and monthly income potential

A chart plots cumulative returns of the ICE 2025 Maturity US Corporate Constrained Index over the 10-year period from 2016 through 2025. It also depicts the declining duration risk as the portfolio nears its end-2025 maturity. Cumulative returns rose steadily over the 10-year period from flat to around 45% higher at the end of the decade. Duration fell steadily over the decade from a starting point at about eight years to about zero at the time of final portfolio maturity.

Notes: Index returns are of the ICE 2025 Maturity US Corporate Constrained Index, which is part of the ICE 20XX Maturity US Corporate Constrained Index series.

Source: Intercontinental Exchange, Inc., from December 31, 2015, through December 31, 2025.
Past performance is no 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.

 

Build bond ladders with Vanguard

With our tools, you can create your own bond ladders for clients using TMEs and our BondBuilder Laddering tool. Alternatively, you can consider Vanguard's BondBuilder Model Portfolios. Either way, you can leverage the features and benefits of Vanguard TMEs to find the right fit for clients' portfolios.

Resources

Bond laddering tool

Build goals-based fixed income portfolios that target client spending needs with our BondBuilderTM Laddering Tool.

Customize portfolios with the BondBuilder Laddering Tool

Vanguard ETF Model Portfolios using BondBuilder ETFs

Explore ways to leverage our BondBuilder ETFs in Vanguard ETF Model Portfolios.

Save time laddering TMEs using our guidance

FAQ

Bond Laddering—Advisor FAQs

A five-year bond ladder holds individual bonds that mature in sequential years, providing predictable cash flows and a known return of principal at each maturity. As each bond matures, the duration of the entire ladder declines. But a perpetual bond fund with a five-year duration that has bonds maturing in one to five years continuously buys and sells bonds to maintain about the same duration at all times. 

Holding an individual bond to maturity avoids realizing interim price losses, because you receive par at maturity if the issuer does not default. However, interest rate risk is not eliminated—your bond’s economic value still fluctuates with rates, even if you don’t sell.

TMEs function like pre‑packaged rungs in a bond ladder because each ETF holds bonds that all mature in the same year and then liquidates, returning NAV to investors. This makes it easy to build multi‑year ladders by combining different TME maturities—similar to buying individual bonds, but with far greater diversification and liquidity.

Duration determines a ladder’s sensitivity to interest‑rate movements—longer rungs carry more rate risk, while shorter rungs react less. A well‑constructed ladder naturally reduces portfolio‑level duration over time as each rung approaches maturity, lowering interest‑rate sensitivity.

TMEs provide far broader diversification than typical individual‑bond ladders, reducing issuer and idiosyncratic risk. Also, TMEs offer superior liquidity and tighter bid‑ask spreads because they trade intraday on exchanges, unlike over-the-counter individual bonds. TMEs dramatically save advisors time and energy and reduce trading costs by replacing many individual bonds with a single TME holding hundreds of bonds. Their duration naturally declines as maturity approaches, simplifying rate‑risk management across a bond ladder.

TMEs typically deliver lower transaction costs than SMAs because ETF secondary‑market liquidity and in‑kind trading keep bid-ask spreads far tighter than the wide spreads SMAs face when trading individual bonds. TMEs provide far broader diversification—hundreds of bonds per maturity cohort—whereas SMAs often hold only 10–20 positions, increasing single‑issuer and downgrade risk. TMEs require far less operational work, since reinvestment, sourcing of bonds, and ongoing credit management are handled within the ETF structure rather than manually in an SMA. TMEs offer greater liquidity and easier access to cash flows because they trade intraday on exchange, unlike SMAs where selling individual positions can be slow and costly.

Diversification: An individual‑bond ladder typically holds 10–20 bonds, while a TME ladder gives exposure to hundreds in each rung, materially reducing single‑issuer and downgrade risk.

Liquidity and Trading: Individual ladders rely on over-the-counter trading with wide spreads and inconsistent liquidity, whereas TME ladders trade intraday on exchange with tighter spreads and more flexible rebalancing.

Operational load and reinvestment efficiency: Individual ladders require manual sourcing, ongoing credit monitoring, and reinvesting proceeds each year, while TMEs automate roll‑down and reinvestment via the ETF structure until final liquidation—likely a far more efficient way to implement bond laddering strategies in client portfolios.

More precise cashflow mechanics: Individual bonds return principal at par on their specific maturity dates, while each TME liquidates at net asset value, returning accumulated principal from all maturing bonds in that vintage year with a single final distribution. TMEs feature the precision of individual bond cash flows mechanics but, because BondBuilders contain an entire portfolio of IG bonds, add a valuable dimension of diversification to client portfolios.

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Disclosures and footnotes

1 “Institutional quality” in this context is meant to convey a level of professional rigor and expertise combined with low costs. 

2 The expense ratio information shown reflects estimated amounts for the current fiscal year. Claim of 20% lower cost than competitors based on Vanguard analysis of Morningstar data, as of February 28, 2026.

3 Claim of market coverage of about 15% more relates to TME indexes competitors employ and is based on data from Intercontinental Exchange, Inc., as of December 31, 2025. 

For more information about Vanguard funds or Vanguard ETFs, visit advisors.vanguard.com or call 800-997-2798 to obtain a prospectus or, if available, a summary prospectus. Investment objectives, risks, charges, expenses, and other important information are contained in the prospectus; read and consider it carefully before investing.

Vanguard ETF Shares are not redeemable with the issuing Fund other than in very large aggregations worth millions of dollars. Instead, investors must buy and sell Vanguard ETF Shares in the secondary market and hold those shares in a brokerage account. In doing so, the investor may incur brokerage commissions and may pay more than net asset value when buying and receive less than net asset value when selling.

All investing is subject to risk, including possible loss of principal. Be aware that fluctuations in the financial markets and other factors may cause declines in the value of your account. There is no guarantee that any particular asset allocation or mix of funds will meet your investment objectives or provide you with a given level of income. Diversification does not ensure a profit or protect against a loss.
Bond funds are subject to interest rate risk, which is the chance bond prices overall will decline because of rising interest rates, and credit risk, which is the chance a bond issuer will fail to pay interest and principal in a timely manner or that negative perceptions of the issuer’s ability to make such payments will cause the price of that bond to decline.

The Target Maturity ETFs (TMEs) are term funds that will liquidate in December of the year in each TME’s name. During the 12 months prior to the planned liquidation date, each TME’s yield generally will tend to move toward prevailing money market rates.

Vanguard does not, and will not, make any representations about whether a model portfolio is in the best interest of any investor, is not, and will not be, responsible for the determination of whether a model portfolio is in the best interest of any investor, and is not acting as an investment advisor to any investor. It is the investment advisor’s responsibility to determine the appropriateness of the model portfolios, or any of the securities included therein, for any client.