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Rise of Bond ETFs Mean Little Mourning for the Middlemen – FT

Full Article: Financial Times

ETFs have become the easiest way for US and European investors to trade bond risk without a middleman. The bond ETF is adding liquidity, sharpening price discovery, and reducing pressure on banks’ balance sheets, especially under stress 

Comments
  • Tried and failed.
    Tried and failed.March 24, 2017"I am a bit late to this discussion, but there is a very important point to make about ETF liquidity; it is absolutely not dependent on secondary bond market liquidity. Firstly ETF market makers are rarely bond dealers, they are usually equity dealers. Secondly ETFs have primary and secondary liquidity. Primary is creation and deletion of ETF shares by APs that can require the buying and selling of underlying cash bonds. Worth noting that an ETF can diverge from the li…"
  • Iceman
    IcemanDecember 10, 2016"ETF's are certainly the product of the day at the moment driven in no small part by Blackrock referring to them at every turn which again is no surprise given they generate a significant amount of revenue from the product. There is significant discussion about the consolidation of the corporate bond market and the role the banks played in ensuring they were the biggest winners, I wonder when someone is going to start looking at the ETF market and the 'Asset Managers'…"
  • Merlin
    MerlinDecember 9, 2016"Here is something to think about. How do you value a corporate bond ETF if there are no underlying markets/prices in the bonds making up the ETF???? By definition do the ETF market makers also become the de facto market makers for the underlyings as opposed to today where many of the AP's activity is dominated by taking liquidity?…"
  • Goose
    GooseDecember 9, 2016"Exchange traded ETF’s bring together retail and institutional interest in a myriad of investment strategies across several adjacent FI products. I believe that has to drive flow downstream for larger outright and complex cash trades. Long term plus for the “middlemen”, whomever they may be. Their business model may evolve, but you will need them more than ever.…"

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5 Comments on "Rise of Bond ETFs Mean Little Mourning for the Middlemen – FT"

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Wolfman
Member

There’s no doubt that ETFs are having an impact on trading activity in fixed income, but it seems to me that the underlying processes of creation and redemption will generate activity in the underlyings as well as “upstairs” block ETF trades put together by brokers.

Goose
Member

Exchange traded ETF’s bring together retail and institutional interest in a myriad of investment strategies across several adjacent FI products. I believe that has to drive flow downstream for larger outright and complex cash trades. Long term plus for the “middlemen”, whomever they may be. Their business model may evolve, but you will need them more than ever.

Merlin
Member

Here is something to think about. How do you value a corporate bond ETF if there are no underlying markets/prices in the bonds making up the ETF????

By definition do the ETF market makers also become the de facto market makers for the underlyings as opposed to today where many of the AP’s activity is dominated by taking liquidity?

Iceman
Member
ETF’s are certainly the product of the day at the moment driven in no small part by Blackrock referring to them at every turn which again is no surprise given they generate a significant amount of revenue from the product. There is significant discussion about the consolidation of the corporate bond market and the role the banks played in ensuring they were the biggest winners, I wonder when someone is going to start looking at the ETF market and the ‘Asset Managers’ who are blatantly pushing the ETF product. I would also suggest the comment on ‘In 2008 global banks… Read more »
Tried and failed.
Member
I am a bit late to this discussion, but there is a very important point to make about ETF liquidity; it is absolutely not dependent on secondary bond market liquidity. Firstly ETF market makers are rarely bond dealers, they are usually equity dealers. Secondly ETFs have primary and secondary liquidity. Primary is creation and deletion of ETF shares by APs that can require the buying and selling of underlying cash bonds. Worth noting that an ETF can diverge from the list of index constituent bonds by optimisation. Secondary liquidity is the buying and selling on an exchange of ETF shares.… Read more »
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