Vanguard Bond ETFs: a growth story

Most Vanguard exchange-traded funds are unique in that the ETFs are structured as a share class of a mutual fund and not as a standalone entity. This structure allows us to view asset flows and asset growth by means of the ratio of ETF share assets to total fund assets

Vanguard introduced exchange-traded funds to bond investors in 2007 when they added an ETF share class to four bond index funds. In 2008 they added an extended maturity treasury fund consisting of zero coupon bonds. This new fund offered ETF and institutional shares.
In 2010 Vanguard introduced two new series of bond index funds: short-term, intermediate-term and long-term funds for both US government and US corporate bonds. These funds offered ETF, admiral and institutional shares.
In 2013 Vanguard introduced two international bond index funds and a short-term inflation indexed treasury index fund. These funds offered investor, admiral, ETF and institutional shares. Vanguard added a Total Corporate Bond index ETF in 2017 and a Total World Bond index ETF in 2019.

Investment grade bond funds

The four Vanguard investment grade bond index funds were founded in 1987 (total bond index fund) and 1994 (short, intermediate and long term index funds) well before the advent of exchange-traded funds. Thus, the ETF share class began as a small percentage of each fund’s asset base. Since their 2007 introduction the funds have experienced  a growing ETF share of fund assets. This has mostly been a steady rise, although the Long Term Bond Index Fund experienced sharp ETF weighting reversals in 2010 and 2013. These reversals were the result of substantial increases in institutional fund assets.

Table: Vanguard Bond funds

YearShort TermIntermediate TermLong TermTotal Bond

Treasury bonds

Vanguard created short, intermediate, and long term US treasury bond exchange-traded funds in 2010 with an accompanying institutional share class. Admiral shares were added in 2012. Since inception, mutual fund shares have increased: admiral share class purchases have steadily increased while institutional flows have fluctuated.

Vanguard offered a long-term zero coupon treasury bond index fund in 2008, offering both institutional and exchange-traded shares. The institutional shares dominated the portfolio at inception. The weighting of ETF shares has increased over time.

The Vanguard Short Term Treasury Inflation Protected Securities Fund was also introduced in  2013. The fund offers investor, admiral, ETF, and institutional shares. Investor share assets are increased by the fund’s inclusion in some of Vanguard’s fund-of-fund portfolios.

Table: Vanguard Treasury Bond funds

YearShort Term Short Term TIPs Intermediate TermLong Term Extended Duration
201666.57% 15.07% 48.04%53.03% 40.12%
201568.80% 14.90% 38.92%30.18% 33.21%
201473.96% 13.26% 36.44%30.92% 22.60%
201381.43% 14.42% 31.78%59.43% 28.32%
201269.32%46.67%45.73% 25.73%
201177.32%30.39%35.42% 22.68%
201084.95%33.33%83.87% 38.10%
2009 23.35%
2008 1.90%

Corporate bonds

The Vanguard corporate bond exchange-traded funds were created in 2007 with accompanying institutional shares. Admiral shares were added in 2012. ETF shares have maintained a clear dominate proportion of the the funds’ asset bases.
One likely explanation for ETF dominance in this asset class is liquidity preference. Corporate bonds tend to be lightly traded and are illiquid. The exchange-traded fund, under normal market conditions, is highly liquid.

Table: Vanguard Corporate Bond funds

YearShort TermIntermediate TermLong TermTotal Corporate

Specialized bonds

The Vanguard Mortgage-Backed Securities ETF was offered in 2010. Admiral shares were added in 2012. ETF shares have always been the dominant holding in the fund.
In 2013 Vanguard introduced international bond index funds. The Emerging Market Government Fund offers investor, admiral, ETF, and institutional shares. Investor and admiral shares impose purchase and redemption transaction fees. The weighting of ETF shares has been dominant as investor interest in mutual fund and institutional mutual fund shares has been tepid.
The Vanguard International Bond Index Fund has been widely accepted by investors. Since inception, the fund has amassed 140 billion dollars in net assets. The fund has received large inflows from all share classes offered: investor, admiral, ETF, and institutional.
The bulk of the fund’s investor shares come from the fund’s inclusion in Vanguard’s fund-of-fund portfolios.

Table: Vanguard Specialized Bond funds

YearTotal WorldMBSInternationalEM Government
2012 52.22%  
2011 82.95%  
2010 79.49%  

Vanguard share classes

Most Vanguard index funds now offer three basic shareclasses: admiral and institutional mutual fund shares, and exchange-traded fund shares. The table below describes some of the basic share attributes.

Vanguard Total Bond indexShare ClassMinimum Investment
Vanguard Total Bond index (VBMPX)Institutional (available only to large institutions such as 401k plans)$100 million
Vanguard Total Bond index (VBTLX)Admiral (available to investors meeting minimum investment requirements)$3,000
Vanguard Total Bond index (BND)ETFnone

 Google spreadsheet link.

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