Iron Road Capital Partners reposted this
A very interesting read on a topic that is very relevant on a day where the Dow Jones Industrial Index Average was down over 1,200 points early in the trading session. Fixed Income ETF's are now an asset class with over $2.2 Trillion in AUM. Five out of the top twenty bond funds are now ETF's. Almost 40% of the top fifty funds are ETF's. I believe this is a blessing and an opportunity as studies have shown that ETF's greatly enhance the trading of individual bond issues. Bonds that are included in ETF's are 60% more liquid than ones that are not index. This does help the overall bond market in times of normal stress, but over the last five years, I have found that bonds that are not in ETF's can get extremely cheap (I am thankful for that). However, the liquidity that BlackRock touts cuts both ways unfortunately. This phenomenon gets amplified on days like today. This morning, while the High Yield Bond ETF <JNK> was down 1%, I was seeing bonds trade down 2-3% as there were sellers of perceived weaker bonds held by high yield ETF's. It is hard to know if the ETF's were the actual sellers or the "Street" was just out in front as usual. Either way I am thankful for the opportunity to provide liquidity this morning.