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Opinion
Jared Dillian

Junk Bond ETFs Are the Future. That's a Good Thing.

In a crisis, the funds would enable a healthy transfer of risk when liquidity dries up.
Junk bond ETFs should be able to weather the next crisis.

Junk bond ETFs should be able to weather the next crisis.

Photographer: Michael Nagle/Getty Images

When you look back at the top financial innovations of the last 10 to 20 years, the first thing that comes to mind is usually not exchange-traded funds that own high-yield bonds.

I traded ETFs for a living in the last decade, and during that time I saw illiquid assets become highly liquid. For example, a basket of Russell 2000 stocks were impossible to trade in the early 2000s. By the late 2000s, though, it was possible to transfer risk of up to $50 million in small capitalization stocks with almost no impact on execution.