ETFs are eating the bond market

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Financial Times 13h ago

ETFs are eating the bond market - Financial Times

Quick Summary:

Instead, bond ETFs typically do something called “sampling”: fund managers assemble a representative slice of more actively-traded bonds that mimics the index as closely as possible in financial and fundamental terms — for example duration, yield, credit rating, industry, convexity, geography yada yada.

The technology around ETFs — even more than the ETF itself — has transformed fixed income trading . . . As a consequence the liquidity of the bond market has improved pretty significantly.

This might seem humdrum to non-credit nerds — people have been able to do this for decades in equities — but the ability to shift huge, multi-faceted chunks of fixed income risks quickly, efficiently and at reasonable prices is a game-changer for the corporate bond market.