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Jared Dillian

Single-Bond ETFs Solve Some Key Investing Problems

Sure there are risks, but taking a benchmark US Treasury security and putting it into an exchange-traded fund wrapper is a revolutionary idea.

Leveling the bond market’s playing field. 

Leveling the bond market’s playing field. 

Photographer: Angela Weiss/AFP via Getty Images

It was bound to happen. Following the launch a few weeks ago of some exchange-traded funds focusing on a single stock, one issuer has come up with single-bond ETFs. These three new funds will hold either the benchmark three-month US Treasury bill, two-year US Treasury note or 10-year US Treasury note. I described single-stock ETFS as financial mutants that benefit nobody, but single-bond ETFs are a surprisingly good idea. In fact, I’m a bit shocked that nobody thought of it until now. 

The primary benefit of these funds as I see it is that they give both retail and institutional investors a way to easily trade in Treasury securities, which is revolutionary. Bonds are complicated, which is why a lot of people - including hedge funds - don’t trade them. It’s a lot easier to buy shares of something that trades on an exchange and not deal with the institutional-sized lots, coupon payments and messy cash flows associated with fixed-income assets. Taking a single bond and putting it into an ETF wrapper solves these problems for investors. It’s not hyperbole to say the implications are huge, and that these funds have the potential to disrupt the ETF industry as well as futures exchanges.