Expert insight

4 nuances to know about bond ETFs

November 18, 2022

As bond ETF adoption has grown, so too has bond ETF trading
Area chart shows increasing bond ETF trading volume from 2016 through December 31, 2021. Average daily volume grew steadily over the six-year period, to about $20 billion per day at the end of 2021—around double the amount of 2016. Trading volume spiked conspicuously during volatile periods, notably during the early part of the COVID-19 lockdown in 2020, during which bond ETF trading volume shot up briefly to around $50 billion per day.
1. Master an opaque market
2. Understand the prevalence of index sampling
3. Be mindful of premiums and discounts
How equity and bond ETFs are priced
A schematic diagram highlights the differences in how equity and bond ETFs are priced. On the left, it shows how the quoted market price of an equity ETF is typically displayed as the midpoint of the bid and ask of the ETF, which reflects the bid and ask prices of the underlying securities. On the right, it shows that for a bond ETF, the NAV is struck using bid-side pricing of the underlying securities.
4. Maximize the tax advantages of bond ETFs

Contributor:

Ian Cannon, CFA, CAIA
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