AGG vs BND: The Two Default Core Bond ETFs, Compared

AGG and BND are close substitutes, and the honest verdict is that either one is fine. They charge the identical 0.03% expense ratio, carry effectively the same interest-rate risk, and hold almost the same bonds in almost the same proportions. They do track two different Bloomberg indexes, which is real and worth understanding, but the difference between those indexes is smaller and more technical than nearly every comparison page claims. The decision that actually costs or saves you something is which broker you hold it at, and whether you would rather own the mutual fund share class instead.

The Short Answer

• Same price. Both charge 0.03%, which each prospectus illustrates as $3 a year on $10,000.
• Different indexes, genuinely. AGG tracks the Bloomberg U.S. Aggregate Bond Index. BND tracks the Bloomberg U.S. Aggregate Float Adjusted Index.
• The difference is narrower than you have been told. Float adjustment reduces a bond's weight by the amount a central bank owns. It does not throw bonds out of the index. And the index AGG tracks is already float-adjusted for Treasuries. The only thing BND's index adds is the same treatment for the Federal Reserve's holdings of agency mortgage-backed securities, agency bonds and CMBS.
• Same interest-rate risk. AGG's effective duration was 5.70 years and BND's average duration 5.7 years on their most recent published dates.
• Same income. On 24 September 2026, AGG's 30-day SEC yield was 4.95% and BND's 4.94%.
• Ten-year returns differ by three basis points. For the ten years ended 31 December 2025, AGG returned 1.97% a year and BND 2.00% a year, both at NAV before taxes.
• The real tiebreakers: commission-free trading at your broker, whether you want the mutual fund share class (BND has one, VBTLX, at 0.04%), and which ticker your existing portfolio already uses.

They Really Do Track Different Indexes

This part is not a myth. The two funds are benchmarked to two separate Bloomberg indexes, and each issuer says so in its own prospectus.

BlackRock's summary prospectus for AGG, dated 29 June 2026, states that the fund "seeks to track the investment results of the Bloomberg U.S. Aggregate Bond Index (the 'Underlying Index'), which measures the performance of the total U.S. investment-grade ... bond market. As of February 28, 2026, there were 13,972 issues in the Underlying Index." The live iShares product page lists the same benchmark and gives its Bloomberg ticker, LBUSTRUU.

Vanguard's summary prospectus for BND, dated 28 April 2026, states that the fund "employs an indexing investment approach designed to track the performance of the Bloomberg U.S. Aggregate Float Adjusted Index (the 'Target Index')." Vanguard's own fund profile labels the benchmark column "Bloomberg US Agg Float Adj Index."

Both indexes are administered by the same firm, Bloomberg Index Services Limited, and both cover the same universe: investment-grade, taxable, US dollar bonds with at least a year to maturity, including Treasuries, agency debt, corporates, mortgage-backed pass-throughs, commercial mortgage-backed securities and asset-backed securities. AGG's prospectus sets out the shared membership rules: a bond needs $300 million or more of face value outstanding, must be fixed-rate, non-convertible and taxable, and the index is market-capitalisation weighted and reconstituted on the last business day of each month.

So the universe is the same. The one difference is how the weights are computed, and that is what "float adjusted" means.

What “Float Adjusted” Actually Changes

Almost every article on this pair says the float-adjusted index "excludes bonds held by the Federal Reserve." That is not what the index administrator's methodology says, and the accurate version is more interesting.

Bloomberg's Fixed Income Index Methodology puts float adjustment under a heading that gives the game away: "Float Adjustments to Amount Outstanding." The glossary defines it as:

"Within Bloomberg Indices, adjustments made to the par amount outstanding of bonds for holdings of central governments that are publicly available. US nominal and inflation-linked Treasuries held by the US government in SOMA accounts are adjusted in flagship Bloomberg Series-L indices. Other SOMA holdings, as well as Bank of England and Bank of Japan holdings are not adjusted in flagship indices, and are instead reflected in Float Adjusted Indices."

Two things follow from that paragraph, and both matter.

First, float adjustment changes weights, not membership. If the Federal Reserve owns a slice of a bond, the index shrinks that bond's par amount outstanding by the Fed's share, so the bond counts for less. The bond itself stays in. Nothing is excluded.

Second, and this is the part that dissolves most of the supposed gap, the index AGG tracks is already float-adjusted for Treasuries. Bloomberg's methodology states that "Federal Reserve purchases and sales of nominal and inflation-linked US Treasuries in open market operations are adjusted in the Bloomberg flagship US Aggregate, Global Treasury and Series-L US TIPS Indices using data made publicly available on the Federal Reserve Bank of New York website."

The flagship US Aggregate index, in other words, already nets out the Fed's Treasury book. So what does the float-adjusted version add? Bloomberg spells it out: "The US Aggregate Float-Adjusted Index adjusts for US Federal Reserve holdings of US MBS pass-throughs, US agency bonds, and US CMBS bonds, in addition to Treasuries."

Vanguard describes the same idea in plainer words in its statutory prospectus glossary, where the Bloomberg U.S. Aggregate Float Adjusted Index "weights its constituent securities based on the value of the constituent securities that are available for public trading, rather than the value of all constituent securities." Vanguard never names the Federal Reserve. The Fed mechanism comes from Bloomberg's own methodology document, linked below.

Does it show up in the portfolios? Barely. The Fed's mortgage book is large in dollars but small against a multi-trillion-dollar index, and both funds sample rather than replicate. The proof is in the sector weights further down: the government-backed share of each fund lands within about two percentage points of the other.

AGG vs BND, Side by Side

Read the as-of column before you read the numbers. The two issuers publish their portfolio statistics on different schedules, so only the 30-day SEC yields happen to share a date.

Three cells in that table deserve a word, because they look like differences and mostly are not.

Holdings count. AGG holds 13,449 positions against an index of 13,972 issues; BND holds 11,421 against an index of 14,227. Both funds sample rather than buy every bond, and BND samples harder. But the counts are not measured the same way: BlackRock defines "number of holdings" as excluding cash and derivatives, while Vanguard reports a bond count next to a separate 1.2% short-term reserves line. Do not read a diversification gap into a definitional one.

Yield to maturity. The 5.45% and 5.0% figures are 25 days apart and are each issuer's own calculation. The 30-day SEC yield is the number regulators standardised precisely so that funds could be compared, and on the same day those were 4.95% and 4.94%.

Turnover. AGG turned over 62% of its portfolio in its latest fiscal year against BND's 38%. In a fund holding thousands of mortgage-backed securities that pay down and get replaced, most of that is mechanical rather than discretionary. It is not reflected in either expense ratio, and it did not stop the two funds finishing within three basis points of each other over ten years.

Duration Is the Number That Matters

If you take one number away from this page, take duration. It is the single statistic that tells you how much either fund will move when interest rates move, and most comparisons of AGG and BND leave it out entirely.

BlackRock's own glossary defines it as a measure of "the sensitivity of the price of a bond with or without embedded options to changes in interest rates, taking into account the likelihood of the bond being called, put and/or sunk prior to its final maturity date." The rough working rule: a fund with a duration of D years loses about D percent of its price for every one percentage point rise in yields, and gains about the same when yields fall.

That table is the actual answer to "how risky is a total bond market fund." It also explains 2022, when both funds lost roughly 13% as yields rose sharply. Duration cuts both ways, which is why the same funds gained ground when yields fell.

Note the false-precision trap. BlackRock says outright that "the options-based duration model used by BlackRock employs certain assumptions and may differ from other fund complexes." AGG's 5.70 and BND's 5.7 come out of two different in-house models on two different dates. Treat them as the same number, because that is all the data supports.

For a wider view of where bonds sit in a portfolio and what they are for, see are bonds a good investment?

What Is Actually Inside Each Fund

Here is the strongest evidence that these two are substitutes. Each issuer publishes its own sector breakdown, on its own schedule, using its own labels, and the portfolios still line up.

Add up the government-backed rows and you get 70.2% for AGG against 68.4% for BND, measured 25 days apart. Whatever the float-adjusted index is doing differently, it is not producing a different portfolio.

Credit quality, and why the two breakdowns look nothing alike

This is the one place where a naive side-by-side table would mislead you badly. BlackRock maps US Treasuries and agency mortgage-backed securities into the AA bucket, because that is where the US sovereign rating sits. Vanguard carves out a separate U.S. Government bucket instead. Same bonds, two filing cabinets.

Strip out the labelling and the substance is identical: both funds are almost entirely investment grade, both carry roughly 12% in A-rated and roughly 12% in BBB-rated corporate credit, and neither holds a meaningful amount of anything below investment grade. BND's 0.01% in BB is a rounding artefact of bonds downgraded after purchase, not a strategy.

Returns Over Identical Periods

Comparison pages love to put two return tables next to each other without checking that the periods match. Here they do. Both rows below are average annual total returns at net asset value, before taxes, for periods ended 31 December 2025, taken from each fund's own summary prospectus filed with the SEC.

Over a decade, the gap is three basis points a year, and it runs in BND's favour. Over five years it is two basis points, in BND's favour again. Over one year it is eight basis points, in AGG's favour. These are not differences you can act on. They are noise from sampling decisions, trade timing and the fact that the two funds are chasing two indexes that themselves finished four basis points apart over ten years.

Notice also that both funds landed slightly behind their own index over ten years, by four basis points for AGG and five for BND, which is roughly what a 0.03% fee plus trading costs should produce. That is a sign both are doing their job.

One warning about AGG's prospectus table. It shows a second benchmark, the Bloomberg U.S. Universal Index, which returned 7.58%, 0.06% and 2.44% over the same periods. That is a broad-market reference index required in the filing, not the index AGG tracks, and comparing AGG's returns to it would be comparing a core bond fund to a wider universe that includes high yield.

This is educational information, not personalised investment advice. Past performance does not guarantee future results, and all investing involves risk of loss including loss of principal. Verify current figures with the fund issuer before investing.

Taxes: Why These Belong in a Retirement Account

Both issuers say the same thing about tax, nearly word for word.

BlackRock: "The Fund intends to make distributions that may be taxable to you as ordinary income or capital gains, unless you are investing through a tax-deferred arrangement such as a 401(k) plan or an IRA, in which case, your distributions generally will be taxed when withdrawn."

Vanguard: "The Fund's distributions may be taxable as ordinary income or capital gains. If you are investing through a tax-advantaged account, such as an IRA or an employer-sponsored retirement or savings plan, special tax rules apply."

The practical consequence is that the interest these funds pass through is taxed at your ordinary income rate, not at the lower rates that apply to qualified stock dividends and long-term capital gains. IRS Publication 550 puts the general rule plainly: ordinary dividends from a mutual fund "are paid out of earnings and profits and are ordinary income to you. This means they are not capital gains."

At a 4.95% yield and a 24% federal bracket, that is a meaningful annual drag if you hold either fund in a taxable brokerage account. Both funds are more at home inside an IRA, a Roth IRA or a 401(k), where the income compounds untaxed. If bonds are what you want in a taxable account, that is a different question with different answers, and a municipal bond fund is usually where that conversation goes.

Neither fund is state-tax-exempt the way a Treasury fund is

Interest on Treasury securities you own directly is exempt from state and local income tax. IRS Publication 550 states it without qualification: "Interest income from Treasury bills, notes, and bonds is subject to federal income tax but is exempt from all state and local income taxes."

Neither AGG nor BND is a Treasury fund. Roughly half of each sits in Treasuries, and the other half is agency mortgage-backed securities, corporate bonds, CMBS and asset-backed paper, whose interest gets no state exemption at all. Agency mortgage-backed securities in particular are not direct Treasury obligations, and most states do not treat them as exempt.

Whether the Treasury slice of your dividend escapes state tax depends on your state's own rules, and several states apply a minimum-holding threshold before they allow any of it through. Both issuers publish an annual tax letter showing what share of each fund's income came from US government obligations. We did not obtain either letter for this page, so we are not putting a percentage on it. If state tax is the thing driving your decision, a Treasury-only fund removes the ambiguity, and our overview of Treasury bonds, bills and notes is the place to start.

So Which One Should You Buy?

Either. We are not going to manufacture a difference that the data does not support. Same fee, same duration, same yield to within one basis point, same sectors to within two percentage points, same ten-year return to within three basis points a year. Pick one, hold it, and spend your attention on your savings rate and your stock-bond split instead, which are the choices that actually move your outcome.

If you want a tiebreaker, work down this list and stop at the first line that applies to you.

• You already hold one of them. Keep it. Selling to switch can trigger a taxable event in a brokerage account and buys you nothing.
• You want the mutual fund instead of the ETF. That points to Vanguard. BND is not a standalone fund; its prospectus describes it as "an exchange-traded share class of Vanguard Total Bond Market Index Fund." The same portfolio is available as VBTLX, Admiral Shares, at a 0.04% expense ratio with a $3,000 minimum initial investment. Mutual fund shares trade once daily at the closing NAV, let you invest exact dollar amounts and automate contributions. AGG's prospectus offers ETF shares only. See ETF vs index fund for the trade-offs.
• Your broker charges commission on one and not the other. Vanguard's own platform is the obvious home for BND; some brokers run their own commission-free lists. A single $5 commission is more than a year of expense ratio on a $10,000 position.
• You care about the tightest possible trading. AGG is the larger single ticker at $136.5 billion, though BND's underlying fund is $398.9 billion across all its share classes. Both trade in enormous volume; for a buy-and-hold investor this is close to irrelevant.
• You are building a portfolio of one brand. Then match your equity funds. If your core is VTI or VOO, BND keeps everything on one statement.

What should not decide it: the index names, last year's eight-basis-point return gap, the holdings count, or the turnover figure. Those are the differences that look like reasons and are not.

Owning both makes even less sense than owning one. You would hold the same bonds twice, in the same proportions, for no added diversification.

Sources & Methodology

Every figure on this page was read from the primary source named below: the issuer's own fund page, the prospectus as filed with the SEC, or the index administrator's published methodology. No figure came from a data aggregator or another comparison site. Where the two issuers report on different dates, the date is printed in the table cell rather than smoothed over.

• iShares Core U.S. Aggregate Bond ETF, Summary Prospectus dated 29 June 2026 (Form 497K, iShares Trust, SEC EDGAR): AGG's index, index membership rules, 13,972 issues as of 28 February 2026, the 0.03% fee table, 62% portfolio turnover, the returns to 31 December 2025 and the tax paragraph.
• iShares AGG product page: holdings count, effective duration, weighted average maturity, average yield to maturity, 30-day SEC yield, average coupon, net assets and sector exposures, each with its own as-of date.
• iShares AGG Fact Sheet, as of 30 June 2026 (PDF): the credit ratings breakdown, BlackRock's stated ratings method, and the glossary definitions of effective duration, weighted average maturity and number of holdings.
• Vanguard Total Bond Market ETF, Summary Prospectus dated 28 April 2026 (Form 497K, Vanguard Bond Index Funds, SEC EDGAR): BND's index, the share-class language, the 0.03% fee table, 38% turnover, the returns to 31 December 2025 and the tax paragraph.
• Vanguard Bond Index Funds statutory prospectus dated 28 April 2026 (Form 485BPOS, SEC EDGAR): Vanguard's glossary definition of the float-adjusted index, and the VBTLX expense ratio and $3,000 Admiral Shares minimum.
• Vanguard BND fund profile: number of bonds, average duration, average effective maturity, yield to maturity, 30-day SEC yield, net assets, credit quality and issuer type, each as of the date shown.
• Bloomberg Fixed Income Index Methodology, 15 October 2024 (Bloomberg Index Services Limited, PDF): the definition of float adjustment, the statement that the flagship US Aggregate index already adjusts for Federal Reserve Treasury holdings, and the statement that the float-adjusted version additionally adjusts for Fed holdings of MBS pass-throughs, agency bonds and CMBS. This is the edition published at that address; check for a newer one before relying on it.
• IRS Publication 550, Investment Income and Expenses: that Treasury interest is exempt from all state and local income taxes, and that ordinary dividends from a fund are ordinary income.

What we could not verify, stated rather than guessed: BND's distribution frequency is not shown on this page because we did not reach Vanguard's distributions schedule; AGG's product page lists monthly. We give no figure for the share of either fund's income that comes from US government obligations, and no state-by-state pass-through rule, because we did not obtain either issuer's annual tax letter or any state revenue department's guidance.

This article is for general education only and is not investment, tax or legal advice. Bond funds can and do lose money, including in the calendar year 2022 shown above. Yields, durations and portfolio statistics on this page change continuously and will be out of date by the time you read them; always check the issuer's current figures. Consider speaking with a licensed financial or tax professional before acting on any of this.

FAQ: AGG vs BND

Is AGG or BND better?
Neither, in any measurable sense. Same 0.03% expense ratio, duration of 5.7 years each, 30-day SEC yields of 4.95% and 4.94% on the same day, and ten-year returns to 31 December 2025 of 1.97% and 2.00% a year. Choose on brokerage convenience or on whether you want the mutual fund share class, not on the funds themselves.

Do AGG and BND track the same index?
No. AGG tracks the Bloomberg U.S. Aggregate Bond Index; BND tracks the Bloomberg U.S. Aggregate Float Adjusted Index. Both are administered by Bloomberg Index Services Limited and cover the same universe of investment-grade US dollar bonds. The float-adjusted version reduces each bond's weight by the amount the Federal Reserve holds of agency mortgage-backed securities, agency bonds and CMBS; Treasuries are already treated that way in both indexes.

What does float adjusted mean for a bond index?
It means the index sets weights using the par amount actually available to private investors rather than the full amount issued, by subtracting central bank holdings. Bloomberg's methodology calls it an adjustment to "amount outstanding," so bonds are down-weighted rather than removed. No bond is excluded from the index because a central bank owns some of it.

Should I own both AGG and BND?
There is no reason to. They hold the same bonds in nearly the same weights, so holding both duplicates one position and adds a second line to your statement for nothing.

Is BND the same as VBTLX?
They are two share classes of the same fund. BND's prospectus describes it as "an exchange-traded share class of Vanguard Total Bond Market Index Fund." VBTLX is the Admiral Shares mutual fund class of that same fund, at a 0.04% expense ratio with a $3,000 minimum initial investment. Same portfolio, same manager, different wrapper.

Does AGG have a mutual fund version?
Not in its prospectus, which offers exchange-traded shares only. If you specifically want a mutual fund rather than an ETF for your core bond holding, that points you to Vanguard's VBTLX.

How much will AGG or BND fall if interest rates rise?
As a rule of thumb, roughly the duration figure in percent for each one-percentage-point rise in yields, so about 5.7% for either fund. That is a hypothetical estimate, not a forecast, and actual moves depend on which part of the yield curve moves and on mortgage prepayment behaviour. It is also the mechanism behind the roughly 13% loss both funds took in 2022.

Are AGG and BND good for a taxable account?
They are a better fit for an IRA or 401(k). Both issuers state that distributions may be taxable as ordinary income, which means the interest is taxed at your marginal rate rather than at long-term capital gains rates. Neither is state-tax-exempt the way a Treasury-only fund is, because roughly half of each fund sits outside Treasuries.

Which is safer, AGG or BND?
They carry the same risks in the same amounts: nearly all investment grade, roughly 12% in BBB-rated corporate credit each, and identical interest-rate sensitivity. Neither is a cash substitute; both fall when yields rise.

Cite This Page

Journalists, educators and bloggers are welcome to cite this comparison. Please link back so readers can reach the prospectuses and the index methodology themselves.

“AGG vs BND: The Two Default Core Bond ETFs, Compared.” Wealthy Pot, 2026. https://wealthypot.com/agg-vs-bnd/

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