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Thursday, 18 June 2015

Street Talk: Bond ETFs Will Collapse Like Bonds -OR Worse!!!


Why bond ETFs have little to fear from a market collapse

They have responded rationally by cutting back their activities,” Wiedman said. “Some banks have shuttered their fixed-income operations, others have cut back on the inventory they carry.”

But while the primary market for corporate bonds is negatively affected in this scenario, the ETFs that are invested in them are not impacted in the same way, Wiedman said, leading more and more fixed-income investors in that direction during times of stress.
At the same time, the supply of corporate bond issuance has continued to increase, resulting in a lower proportion of outstanding bonds that banks readily have available to trade as primary dealers.

For example, the iShares iBoxx $ High Yield Corporate Bond ETF units trading in the U.S. spiked in terms of a percentage of the overall cash bond volume trading after the Lehman Brothers collapse in 2008 and there was another big spike following former Fed chair Ben Bernanke’s taper speech in 2013.


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