It's not just U.S. stocks that are falling behind the rest of the world. America's bonds and bond ETFs are trailing, too.
IShares Core U.S. Aggregate Bond, the giant bond ETF with more than $122 billion in assets, has only returned 1.55% this year, says Morningstar Direct. That ranks it just 105th out of the 400 actively traded bond and income ETFs tracked by Morningstar.
So what's doing better than U.S. bond ETFs this year then? Mainly bond funds with exposure to nations other than the U.S., or those positioned to shield investors from volatility in U.S. markets. And much of that's due to the weakening of the U.S. dollar, says Todd Rosenbluth, director of research at TMX VettaFi.
The top-performing bond ETF this year, the Quadratic Interest Rate Volatility And Inflation Hedge ETF, uses options to hedge the risk of rising prices. It has returned 12.4% this year.
"The dollar has weakened versus many major currencies in 2025 amid concerns about tariffs and a potentially slowing U.S. economy," he said. "Investors have sought safety in other developed-market currencies."
Dollar Weakness A Boon For Yen And Euro
Single-currency ETFs, which Morningstar groups with taxable bond ETFs, have been big winners.
Invesco CurrencyShares Japanese Yen, Invesco CurrencyShares Swiss Franc and Invesco CurrencyShares Euro are among the top gainers in Morningstar's bond category this year. They're up 11.1%, 10.8% and 10.8%, respectively.
There are rising questions of whether President Donald Trump's tariffs will harm the U.S.' postwar status as the nucleus of the global economy. Already European nations are taking steps to be less reliant on the U.S. financial system.
"The dollar usually weakens during periods of global growth and strengthens when a crisis is brewing," said Nicholas Colas of Datatrek Research. "It is weakening now. That could be due to policy uncertainty fears, or it could be signaling incremental rest-of-world strength."
Foreign Bond ETFs Outperform
When it comes to straight bond ETFs, the standouts are investing outside the U.S. The SPDR Bloomberg International Corporate Bond ETF returned 11.5% this year. The ETF owns debt of large European banks like UBS and ING.
Even global government bonds are outpacing U.S. bonds. The iShares 1-3 Year International Treasury Bond ETF has returned 10.3% this year. Its top holdings are government bonds from Ireland, Sweden, Portugal and Singapore.
"Investors tend to be underexposed to developed- and emerging-market bond ETFs," Rosenbluth said. That may change as ETFs like SPDR Bloomberg International Corporate Bond, VanEck JPMorgan Emerging Market Local Currency Bond and others "offer diversification benefits to bond investors focused on U.S. Treasuries and corporate bonds," he said.
SPDR Bloomberg International Corporate Bond and iShares International Treasury Bond are focused on developed markets, while many other top performers this year are centered on emerging markets. A weak dollar "not only helped currency ETFs perform well but emerging-market bond ETFs that offer high yields and benefit from being priced in non-dollar denominations," Rosenbluth said.
Top Bond ETFs And Income ETFs This Year
| Name | Ticker | YTD return |
|---|---|---|
| Quadratic Interest Rate Vol And Inflation Hedge | IVOL | 12.39% |
| SPDR Bloomberg Int'l Corp. Bond | IBND | 11.50 |
| Simplify Interest Rate Hedge | PFIX | 11.46 |
| Invesco CurrencyShares Japanese Yen | FXY | 11.12 |
| Invesco CurrencyShares Swiss Franc | FXF | 10.84 |
| Invesco CurrencyShares Euro Currency | FXE | 10.80 |
| iShares 1-3 Year Int'l Treasury | ISHG | 10.32 |
| SPDR Bloomberg Short-Term Int'l Treasury | BWZ | 9.40 |
| iShares Int'l Treasury | IGOV | 9.19 |
| SPDR Bloomberg Int'l Treasury | BWX | 8.61 |
