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Credit Liquidity Risk Is Rising Thanks to Boom in Bond ETFs

  • Study raises questions over passive investing in fixed income
  • High ETF ownership threatens ability to spread liquidity risk
Updated on

Plenty on Wall Street fear the explosive growth of passive investing will eventually store up trouble for bond portfolios. An academic from the Swiss Finance Institute has found evidence it has already begun.

After dissecting more than 10,000 corporate bonds, Efe Cotelioglu found that high-grade securities share similar liquidity characteristics when they are heavily owned by exchange-traded funds.