ETFdb Logo
  • ETF Database
  • Channels
    • Themes
      • Active ETF
      • Alternatives Channel
      • Artificial Intelligence
      • China Insights
      • Climate Insights
      • Core Strategies
      • Crypto
      • Disruptive Technology
      • Energy Infrastructure
      • ETF Building Blocks
      • ETF Education
      • ETF Investing
      • ETF Strategist
      • Faith-Based Investing
      • Financial Literacy
      • Fixed Income
      • Free Cash Flow
      • Innovative ETFs
      • Invest Beyond Cash
      • Leveraged & Inverse
      • Modern Alpha
      • Portfolio Strategies
      • Tax Efficient Income
    • Asset Class
      • Equity
        • U.S. Equity
        • Int'l Developed
        • Emerging Market Equities
      • Alternatives
        • Gold/Silver/Critical Materials
        • Crypytocurrency
        • Currency
        • Volatility
      • Fixed Income
        • Investment Grade Corporates
        • US Treasuries & TIPS
        • High Yield Corporates
        • Int'l Fixed Income
    • ETF Ecosystem
    • ETFs in Canada
    • Market Outlook
    • Crypto ETF Hub
  • Tools
    • ETF Screener
    • ETF Country Exposure Tool
    • ETF Database Categories
    • Indexes
    • Scenario Analysis
    • Watchlists
    • Head-To-Head ETF Comparison Tool
    • Mutual Fund To ETF Converter
    • ETF Stock Exposure Tool
    • ETF Issuer Fund Flows
  • Research
    • ETF Education
    • Equity Investing
    • Dividend ETFs
    • Leveraged ETFs
    • Inverse ETFs
    • Index Education
    • Index Insights
    • Top ETF Sectors
    • Top ETF Issuers
    • Top ETF Industries
  • Webcasts
  • Themes
    • AI ETFs
    • Blockchain ETFs
    • See all Thematic Investing ETF themes
    • ESG Investing
    • Marijuana ETFs
  • Multimedia
    • ETF 360 Video Series
    • ETF of the Week Podcast
    • Gaining Perspective Podcast
    • ETF Prime Podcast
    • Video
  • Company
    • About VettaFi
    • Get VettaFi’ed
  • 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

Jul 11

Main Management Market Note: July 11, 2025

Jul 11

Treasury Yields Snapshot: July 11, 2025

Jul 11

S&P 500 Snapshot: Index Retreats From Record High

Jul 11

Bitcoin's Real-World Utility: A Strategic Asset for U.S. Investors and Global Markets

Jul 11

Economic Crosscurrents in 2025: Inflation, Interest Rates, and Investment Strategy

Jul 11

June 2025’s Most Innovative ETF Launches

Jul 11

As Congress Mulls Muni Tax Repeal, Here's 8 ETFs to Ponder

Jul 11

Fidelity, T. Rowe Price, JPMAM Active International ETFs Outperform EFA

Jul 11

Market Update – July 11, 2025

Jul 11

Behind Buffer ETFs’ Latest First-of-a-Kind Strategies

QQQ

Invesco QQQ Trust Series I

VOO

Vanguard S&P 500 ETF

IBIT

iShares Bitcoin Trust ETF

SCHD

Schwab US Dividend Equity ETF...

SPY

SPDR S&P 500 ETF Trust

FIAT

YieldMax Short COIN Option...

IVV

iShares Core S&P 500 ETF

SMH

VanEck Semiconductor ETF

GLD

SPDR Gold Shares

AIQ

Global X Artificial...


Content continues below advertisement

Loading Articles...
Our Sites
  • VettaFi
  • Advisor Perspectives
  • ETF Trends
Tools
  • ETF Screener
  • Mutual Fund to ETF Converter
  • Head-To-Head ETF Comparison
  • ETF Country Exposure Tool
  • ETF Stock Exposure Tool
  • ETF Database Pro
More Tools
  • Financial Advisor & RIA Center
Explore ETFs
  • ETF News
  • ETF Category Reports
  • Premium Articles
  • Alphabetical Listing of ETFs
  • Browse ETFs by ETF Database Category
  • Browse ETFs by Index
  • Browse ETFs by Issuer
  • Compare ETFs
Information
  • Contact Us
  • Terms of Use and Privacy Policy
  • © 2025 VettaFi LLC. All rights reserved.

Advertisement

Is Your Portfolio Positioned With Enough Global Exposure?

ETF Education Channel

How to Allocate Commodities in Portfolios

Tom LydonApr 26, 2022
2022-04-26

A long-running debate in asset allocation circles is how much of a portfolio an investor should...

Core Strategies Channel

Why ETFs Experience Limit Up/Down Protections

Karrie GordonMay 13, 2022
2022-05-13

In a digital age where information moves in milliseconds and millions of participants can transact...

}
X