AGG vs BND: Which Is the Better Pick in 2026?

Overview

AGG and BND are nearly identical core bond ETFs tracking slightly different versions of the Bloomberg U.S. Aggregate Bond Index. Both hold investment-grade Treasuries, mortgage-backed securities, and corporate bonds across similar maturity and credit profiles. The key distinction is AGG uses the unadjusted Aggregate Index while BND tracks the Float Adjusted variant, which weights bonds by their market-available supply rather than par outstanding—a technical difference that produces nearly indistinguishable performance and yield in practice.

How they differ

Both funds charge 0.03% and distribute 4.01–4.02% monthly, making them functionally identical on cost and income. The real divergence is in their underlying indices: AGG follows the Bloomberg Aggregate while BND follows the Float Adjusted version, which excludes or reduces positions in bonds with limited public float (like certain Treasury STRIPS and some agency issuance). In practice this means BND's weightings shift slightly toward the most liquid, tradeable portions of the bond market, but the performance gap between them is negligible—both have similar duration, credit spreads, and yield profiles. AGG is substantially larger at $136B AUM versus BND's $158B, though both are enormous and highly liquid.

Who each is best for

AGG: Fits investors seeking the broadest possible definition of U.S. investment-grade bonds with a 20-year track record, since it has been around since 2003 and uses the original, par-weighted index methodology.

BND: Designed for investors who prefer tracking a liquidity-adjusted index, which may have marginally lower transaction costs in the underlying bond holdings, and who are comfortable with Vanguard's execution.

Key risks to know

• Interest rate duration risk. Both funds have duration around 6 years, so a 100-basis-point rise in yields could erode NAV by roughly 6%. For investors planning to hold bonds to maturity this isn't material, but for those trading or rebalancing, timing rate movements matters.

• Credit spread widening. The funds hold roughly 40% non-Treasury exposure (corporates, mortgage-backs, agencies). If credit spreads widen during a recession or volatility spike, total returns will lag even if Treasury yields stay flat.

• Mortgage prepayment risk. MBS holdings accelerate paydowns when rates fall, forcing reinvestment into lower yields; conversely, when rates rise, mortgages slow down, extending duration and locking in lower coupons. This "negative convexity" is embedded in both portfolios.

• Float adjustment is minor but real. BND's exclusion of certain low-float Treasury and agency securities is subtle, but it does mean BND will hold slightly different positions and may track the index with marginally tighter error than AGG in periods of extreme Treasury supply.

Bottom line

If you want the most comprehensive bond-market index with the longest track record, AGG has the edge. If you prefer Vanguard's structure or believe a float-adjusted weighting reflects the tradeable market more accurately, BND delivers essentially the same outcome at the same cost. For most core fixed-income allocations, the choice between them comes down to custodial preference or existing account relationships rather than material performance or risk differences. Past performance does not guarantee future results.