The worst-performing fixed-income ETFs of the past 10 years

Bonds flipped their safe and snoozy persona last year when they went through one of the worst downturns in decades.

Bloomberg's U.S. Aggregate Bond Index, a broad-based, widely followed benchmark of investment-grade and corporate bonds, fell 13.01% in 2022, the worst performance since it was created in 1976. Driving the pain: rapid-fire interest rate hikes by the Federal Reserve, which is still laboring to tame persistent inflation that peaked last June at a 40-year high.

When bond prices fall, their yields, or returns to investors, increase (the two elements move in opposite directions). And in the carnage of last year, investors have been piling in to take advantage of the sale. Bond exchange-traded funds took in $24.5 billion in January 2023, rivaling their stock counterparts despite holding around one-fourth the total assets, Morningstar wrote on Feb. 1.

Fixed-income ETFs are popular with financial advisors because they give clients exposure to lots of instruments, primarily bonds, through a single security. The fund pays out the interest it receives on its underlying holdings, so an investor doesn't have to keep track of individual maturity and redemption dates. The funds are also cheaper than buying bonds directly, Bankrate says.

Still, some fixed-income ETFs place their bets on volatile or exotic investments, such as sovereign bonds or foreign currency instruments, or use fancy financial derivatives to magnify their exposure to the index they track.

Scroll through our slideshow to see which U.S. exchange-traded fixed-income funds had the worst returns over the past 10 years. All data is from Morningstar Direct. One-year return data is for 2022; 10-year data is for Feb. 1, 2013, through Jan. 31, 2023.