ETFdb Logo
ETFdb Logo
ETFdb Logo
ETFdb Logo
  • Channels
    • Active ETF
    • Alternatives
    • Beyond Basic Beta
    • China Insights
    • Climate Insights
    • Commodities
    • Core Strategies
    • Crypto
    • Disruptive Technology
    • Dividend
    • Dual Impact
    • Emerging Markets
    • Energy Infrastructure
    • Entrepreneur ETF
    • Equity ETF
    • ESG
    • ETF Building Blocks
    • ETF Education
    • ETF Strategist
    • Fixed Income
    • Future ETFs
    • Gold & Silver Investing
    • Innovative ETFs
    • Institutional Income Strategies
    • Leveraged & Inverse
    • Managed Futures
    • Modern Alpha
    • Multi-Asset
    • Multi-Factor
    • Nasdaq Investment Intelligence
    • Portfolio Strategies
    • Retirement Income
    • Smart Beta
    • Thematic Investing
    • Volatility Resource
  • Database
  • Tools
    • ETF Screener
    • ETF Country Exposure Tool
    • ETF Sector Tracker Tool
    • ETF Database Categories
    • Head-To-Head ETF Comparison Tool
    • ETF Stock Exposure Tool
    • ETF Issuer Fund Flows
    • Indexes
    • Mutual Fund To ETF Converter
    • ETF Data for Journalists
    • ETF Nerds
  • Research
    • First Bitcoin ETF
    • ETF Education
    • Equity Investing
    • Dividend ETFs
    • Leveraged ETFs
    • Inverse ETFs
    • Top ETF Sectors
    • Top ETF Issuers
    • Top ETF Industries
  • Webcasts
    • ETFs Future-Forward 2021: An iShares Investing Symposium
    • Three Themes for 2021: An iShares & MSCI Investing Symposium
  • Themes
    • AI ETFs
    • Blockchain ETFs
    • See all Thematic Investing ETF themes
    • ESG Investing
    • Marijuana ETFs
  • Videos & Podcasts
    • ETF 360 Video Series
    • ETF Trends on Videos
    • ETF Trends on Podcasts
    • ETF Prime Podcast
  • PRO
    • Pro Content
    • Pro Tools
    • Advanced
    • FAQ
    • Pricing
    • Free Sign Up
    • Login
  1. ETFs Help Add Liquidity to a Generally Illiquid Bond Market
News
Share

ETFs Help Add Liquidity to a Generally Illiquid Bond Market

Ben HernandezOct 15, 2019
2019-10-15

A myth of exchange-traded funds is that the constant buying and selling could result in inflated stock prices that don’t reflect the true valuation of a particular company. While this is an ongoing debate in the equities market, others view that in the bond market, ETFs are actually a purveyor of liquidity where constant buying and selling is a good thing.

This is particularly true in the current environment where investors are snatching up bonds to seek refuge from the volatility in equities. With everyone buying bonds, ETFs can help infuse liquidity.

“ETFs–particularly those investing in high-yield bonds and bank loans–have been singled out as an area of specific alarm, given their unique structure and perceived superior liquidity,” said Ben Johnson in a Morningstar article. “Some of these fears could prove to be perfectly reasonable, though most of them aren’t unique to ETFs,” said The ETF-specific concerns serve as evidence that many investors still don’t fully comprehend the function fixed-income ETFs serve or how they work.”

Johnson made the distinction between how liquidity is affected in bonds versus stocks.

“Bonds are not stocks. Bonds are often bought with the intention of being held until maturity,” said Johnson. “Thus, they are traded far less frequently than stocks. Also, there is no central exchange for bonds as there is for stocks. Bonds are traded over the counter. Buyers and sellers may link up over the phone or via instant messaging. The process can be time-consuming and expensive. Additionally, bonds are not standardized. Citigroup’s stock has a single listing, but the firm has more than 1,000 different bonds, each of them unique. This fragmentation further fosters illiquidity.”

“Liquidity also varies depending upon prevailing market conditions,” Johnson added. “In good times, it is plentiful and inexpensive. In bad times, it is hard to come by and costly.”

Liquidity Varies


Content continues below advertisement

Investors looking to get core bond exposure can look to funds like the iShares Core U.S. Aggregate Bond ETF (AGG A+).

Fund Facts:

  • AGG seeks to track the investment results of the Bloomberg Barclays U.S. Aggregate Bond Index.
  • The index measures the performance of the total U.S. investment-grade bond market.
  • The fund generally invests at least 90% of its net assets in component securities of its underlying index and in investments that have economic characteristics that are substantially identical to the economic characteristics of the component securities of its underlying index.

Reasons to use AGG:

  • Broad exposure to U.S. investment-grade bonds
  • A low-cost easy way to diversify a portfolio using fixed income
  •  Use at the core of your portfolio to seek stability and pursue income

This article originally appeared on ETFTrends.com

» Popular Pages

  • Tickers
  • Articles

May 17

Uranium Investing Has Legs

May 17

Why Managed Futures Are the Crisis Alpha Creators

May 17

Exchange Reflections with Dave Nadig

May 17

Invest in Infrastructure With This One ETF

May 17

MICUS: Bitcoin Is “Best Store of Value Earth Has Seen”

May 17

Simplify Helps Asset Allocation with FIG Launch

May 17

Teucrium Launches Diversified Agro ETF With TILL

May 17

Convertible Bond Drubbing May be Worth it With This ETF

May 17

Tech Bargains Means Now's a Good Time to Mind QQQ's

May 17

Tech Pain Helped This Leveraged ETF Go Up 150% YTD

QQQ

Invesco QQQ Trust

SPY

SPDR S&P 500 ETF Trust

VOO

Vanguard S&P 500 ETF

ARKK

ARK Innovation ETF

VYM

Vanguard High Dividend Yield...

WEAT

Teucrium Wheat Fund

VTI

Vanguard Total Stock Market...

VGT

Vanguard Information...

XLE

Energy Select Sector SPDR...

VIG

Vanguard Dividend...


Content continues below advertisement

Loading Articles...
Help & Info
  • Contact Us
  • About Us
  • Mission Statement
  • Press
Tools
  • ETF Screener
  • ETF Analyzer
  • Mutual Fund to ETF Converter
  • Head-To-Head ETF Comparison
  • ETF Country Exposure Tool
  • ETF Stock Exposure Tool
  • ETF Performance Visualizer
  • ETF Database Model Portfolios
  • ETF Database Realtime Ratings
  • ETF Database Pro
More Tools
  • ETF Launch Center
  • Financial Advisor & RIA Center
  • ETF Database RSS Feed
Explore ETFs
  • ETF News
  • ETF Picks of the Month
  • ETF Category Reports
  • Premium Articles
  • Alphabetical Listing of ETFs
  • Best ETFs
  • Browse ETFs by ETF Database Category
  • Browse ETFs by Index
  • Browse ETFs by Issuer
  • Compare ETFs
Legal
  • Terms of Use and Privacy Policy
  • © ETF Flows LLC
Follow ETF Database
Follow ETF Database

Advertisement

Is Your Portfolio Positioned With Enough Global Exposure?

Equity ETF Channel

Retirement Portfolio Redux: Is the 60%-40% Portfolio Dead?

Debbie CarlsonOct 22, 2020
2020-10-22

With the 10-year U.S. Treasury yield hovering below 1% and Federal Reserve Chairman Jerome Powell...

Equity ETF Channel

Portfolio Diversification Isn't Dead, It Was Just Sleeping

Debbie CarlsonOct 15, 2020
2020-10-15

Investors could be forgiven to think there was no reason to invest outside of the U.S. for the...

}
X