Fixed-Income ETFs Are Trapped in Bond Market’s Liquidity Crunch
- Bonds ETFs trading at steep discounts as liquidity vanishes
- Arbitrage opportunity less attractive amid swings: Schawel
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As fixed-income markets buckle under wild swings and scarce liquidity, the strain is starting to show in bond exchange-traded funds.
Cash prices in some of the most actively traded bond funds are now at steep discounts to the value of their underlying assets. The largest debt ETF -- the $74 billion iShares Core U.S. Aggregate Bond fund -- closed at a 4.4% discount to its net asset value on March 12, the largest divergence since 2008, according to data compiled by Bloomberg. Meanwhile, the $31 billion iShares iBoxx $ Investment Grade Corporate Bond ETF’s price fell 5% below its net-asset value on Thursday, also the largest discount since 2008.