Long-Term Corporate Bond ETFs: SPLB vs. LQD for Income Investors in a Rising Rate Environment

For income-focused investors navigating a rising interest rate environment, the choice between long-term corporate bond ETFs like the Schwab Long-Term Treasury Bond ETF (SPLB) and the iShares Senior Loan ETF (LQD) requires a nuanced understanding of yield, duration, credit quality, and historical resilience. While both funds offer exposure to investment-grade corporate bonds, their structural differences create distinct risk-return profiles that demand careful evaluation.

Yield and Cost Efficiency: SPLB's Edge

SPLB currently offers a higher yield of 5.13% compared to LQD's 4.35%, making it an attractive option for investors prioritizing income generation according to a recent analysis. Additionally, SPLB's expense ratio of 0.04% is significantly lower than LQD's 0.14%, reducing drag on returns over time according to the same report. However, these advantages come with trade-offs. SPLB's higher yield is tied to its focus on long-term corporate bonds with maturities of 10 years or more, which inherently carry greater interest rate risk.

Duration and Interest Rate Sensitivity: LQD's Defensive Edge

Duration is a critical metric for assessing bond ETFs in a rising rate environment. SPLB has an effective duration of 12.65 years according to the analysis, meaning its price is expected to decline more sharply as rates rise. In contrast, LQD's effective duration of 8.02 years according to iShares suggests it is less sensitive to rate fluctuations, offering a buffer against volatility. This shorter duration aligns with LQD's broader maturity range, which includes intermediate-term corporate bonds. Historical performance during the 2022–2023 rate-hiking cycle underscores this dynamic: LQD experienced a 24.96% maximum drawdown, while SPLB's drawdown reached 34.47% according to the analysis. For investors seeking resilience amid tightening monetary policy, LQD's shorter duration may provide a more stable income stream.

Credit Quality: A Mixed Picture

Both ETFs maintain strong credit quality, but their compositions differ. LQD's portfolio is weighted toward bonds rated A or BBB, with an average credit rating of "A-" according to Investopedia. This high-quality focus reduces default risk, though no specific default rates were identified for LQD in the most recent quarter. SPLB, which tracks the Bloomberg Long U.S. Corporate Index, has a weighted average maturity of 22.54 years according to State Street, but its average credit ratings and default rates for Q3 2025 were not explicitly disclosed. S&P Global Ratings affirmed SPLB's credit quality in 2025 according to their report, but the lack of granular data highlights the need for investors to monitor sector-specific risks in long-duration portfolios.

Historical Performance: Lessons from Past Cycles

During the 2022–2023 rate-hiking cycle, both SPLB and LQD faced significant losses, but LQD's shorter duration mitigated its downside. LQD's 24.96% drawdown according to the analysis paled in comparison to SPLB's 34.47% drawdown, illustrating the value of duration management in volatile markets. Looking further back, the 2004–2006 tightening cycle-marked by a 425-basis-point rate hike-offers additional context. While specific ETF performance data for this period is limited, the broader economic environment according to the Richmond Fed suggests that long-duration assets like SPLB would have underperformed relative to shorter-duration alternatives.

Strategic Implications for Income Investors

For investors prioritizing yield and cost efficiency, SPLB's 5.13% yield and 0.04% expense ratio according to the analysis make it a compelling choice. However, its long-duration structure exposes it to greater price volatility in a rising rate environment. Conversely, LQD's shorter duration and diversified maturity profile offer a more defensive stance, albeit with a lower yield and higher fees.

A balanced approach might involve allocating to both ETFs based on an investor's risk tolerance and time horizon. For example, a core position in LQD could anchor a portfolio during rate hikes, while a smaller allocation to SPLB captures higher yield potential in a stable or falling rate environment.

Conclusion

The SPLB vs. LQD debate ultimately hinges on the trade-off between yield and resilience. While SPLB excels in income generation and cost efficiency, LQD's shorter duration and diversified maturity range make it a more robust choice for investors prioritizing capital preservation in a rising rate climate. As the Federal Reserve continues to navigate inflationary pressures, understanding these dynamics will be critical for optimizing long-term corporate bond ETF allocations.