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The Anatomy of Bond ETF Arbitrage – BIS Report 

Full Article: BIS Report

This article explains and analyses a crucial but understudied aspect of ETF arbitrage that distinguishes equity ETFs from bond ETFs: the nature of ETF baskets. Whereas for equity ETFs baskets are usually almost identical to holdings, for bond ETFs they are systematically different and include a small share of the bonds in the actual holdings, eg less than 3% for the largest bond ETF. For bond ETFs, baskets also change significantly from day to day and creation baskets tend to have longer duration and higher liquidity than redemption baskets.

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